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Goods bought with loyalty points will face tax under GST

Your shopping out of the accumulated loyalty or bonus points will face tax under the goods and services tax (GST) regime. GST would be levied on the total price of the product and not on the discounted value after adjusting the bonus, loyalty or rewards points.

“Loyalty points are nothing but a mode of payment… GST must be paid on total value of supply irrespective of the fact that loyalty points are utilised while making a purchase,” according to a report on textiles prepared by a group of officials.

The government had set up 18 sectoral groups to ensure smooth transition to GST. The law committee, which is meeting on Thursday and Friday, would take a final view on this now.

Loyalty cards are very popular with retail chains these days as a means of coaxing customers to make repeat purchases. Customer earns certain bonus points on shopping at stores and these points can then be set off from the total bill amount in subsequent purchase. Usually, a customer earns 1 point for a certain amount spent by him.

At present, there is some lack of clarity on the treatment of these points. While some stores charge value-added tax on it, others don’t treating them as discount. The GST, which replaces multiple central taxes such as central excise duty, service tax and state taxes such as value-added tax, purchase tax, octroi, has taken into its fold some practices followed under the excise duty and some under state taxes.

Globally, in some countries these are treated as discounts.

Experts favour excluding loyalty points from the GST liability calculation. “Ideally, GST should be paid on the amount after reducing the sum attributable to loyalty points, as it is essentially in the nature of discount provided the other prescribed conditions are met. However, under VAT also, many retailers were paying tax on full value (i.e without adjusting for loyalty points discounts),” said Pratik Jain, leader, indirect taxes, PwC India.

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