With competition increasing greatly in the market, more and more banks are offering lucrative offers to attract a large number of customers to use their credit cards. Although these credit cards offer a lot of rewards, not many customers are aware whether these rewards are taxable or not. The good news and the bad news here is that the answer is both yes and no. There are certain rewards, which do not qualify for tax, but when it comes to some rewards, they are eligible for taxes.
Let us learn more about both types of rewards, taxable and non-taxable.
Cashback rewards
These are not taxable. Most people prefer cash back rewards because it helps them pay for utilities and other basic necessities. By making purchases with your credit card, you can accumulate points, which can be collected together to qualify for cash back. The good news here is that cashback rewards are not taxable since you accumulate them after spending a certain amount on usual expenditures.
Incentives received after switching banks
There are a plenty of reasons to switch your bank. Maybe, there are no branches of the bank in your area or the interest rates that you need to pay are very high or even the maintenance fee may seem very expensive. Owing to such circumstances, you may have decided to switch your account to another bank. However, the good news here is that the incentives you get on opening a new account are not taxable either.
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Bank rewards or the loyalty commission
Most banks give you a certain loyalty commission for opening an account with them. While this particular expense is covered in the blanket of annual charges, these are still paid monthly, and you are given a plethora of services for a meager charge. Although, this particular charge is something that most banks will specify under taxable income. You need to find out from your bank whether you are paying any miscellaneous charges or even annual charges that are hidden.
There are various bank bonuses that the government will consider as your income. All of this is added to your income and then is categorized as a taxable income. However, you can keep a check on this as well and find out from your bank whether this meager bonus will be taxable or not.
One of the easiest ways to navigate through the big question of rewards being taxable or not is by answering the following question—whether you earned it or you were just handed it on a platter. This is why credit card rewards are generally not taxable as you are required to make a purchase in order to earn that reward. However when it comes to incentives, which were given to you just like that by a bank, then you should be aware that it might be a gimmick to attract you to open an account or get a credit card. Such incentives are definitely taxable. With a little precaution, you can easily pass on the taxable rewards and keep the non-taxable ones that will be useful for you.
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