Cashbacks on online shopping may not stay as lucrative now

Accustomed to shopping online on Amazon and Myntra with a special credit card that gives you great offers and cashbacks? Well, this may soon come under the GST lens. 

Many credit cards, which are considered good for online shopping purposes, come together as an arrangement between a bank and an e-tailer. Take the Amazon-ICICI credit card, or the Flipkart-Axis card for instance. You are incentivized to make transactions via these cards, because they promise cashbacks, and good discounts. 

However, to compensate for this, the e-tailers pay back the banks separately. And since the entire process is a barter of sorts, it could potentially come under the GST scanner. 

As per media reports, the industry argues that since the ultimate benefit i.e. discount/cashback is available to the customer, there should be no GST levied on transactions made between the bank/payment portal/UPI and the online platform does not exist. But there is little merit to this argument, argue experts. Notably, the fact that trade discounts do not come under GST’s purview. 

But that might not be the case for these parties, which enter  co-branding arrangements for such purposes. For instance, suppose you buy a mobile, and get a Rs 1,000 cashback. The mobile will change hands, i.e. coming to you from the retailer, but the same phone will have no underlying effect on the transactions between the bank and the retailer. That, in effect, makes it barter service. 

Moreover, both online retailers and banks enter into agreements that detail branding, marketing and promotional activities. It is a provision of service, which can attract GST. 

However, if the online retailer and bank/UPI portal work independently and offer discounts and cashbacks sans these arrangements, it would not attract any GST. This is because there is no mutual benefit derived from each other’s offerings.