GST on Unredeemed Loyalty Points: Haryana Appellate Authority Ruling
The Haryana Appellate Authority for Advance Ruling decided that money retained from expired loyalty points is taxable as a service.
- Ruling
- HAAAR/2018-19/01 dated 23.10.18
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Loyalty program operator asked if expired points are taxable.
- Authority ruled that retained funds are payment for services.
- Expired points are not considered non-taxable actionable claims.
- GST applies to the value of unredeemed points.
In short
The company asked if the money they keep when customers fail to use their loyalty points within three years is subject to Goods and Services Tax (GST). They argued that these points were 'actionable claims' and therefore not a supply of goods or services. The authority disagreed, ruling that the loyalty program is a service provided to partners and the retained money is part of the payment for that service.
What has changed
How it worked before
Many businesses assumed that money kept from expired loyalty points was not taxable because the points themselves were viewed as a type of financial claim rather than a service.
What has changed
The authority decided that the retained money is taxable revenue for the service of managing the loyalty program. In practice, this means businesses operating similar programs must now pay GST on the value of points that expire unused.
Who this affects
Businesses that operate loyalty programs where they retain the value of points that customers fail to redeem.
An example
Imagine a retail chain that runs a points program managed by a third-party firm. If the firm keeps the money for points that customers never use, this ruling suggests that the firm must pay GST on that retained amount. The retail chain should ensure their service agreements account for this tax liability.
What you should do
If you run a loyalty program, review your contracts to see if you retain the value of expired points. Note that this ruling only binds the company that asked; it is not a general law for all businesses. You should consult your tax advisor to see if your specific program structure makes this ruling relevant to your tax filings.
If you do nothing
If you assume this ruling applies to you and stop paying tax, or conversely, if you ignore it and pay tax when your specific contract structure might exempt you, you risk disputes with your local tax officer. A tax officer may issue a notice for unpaid tax, interest, and penalties if they disagree with your interpretation of your business model.
The terms explained
- Actionable claim
- A claim to an unsecured debt or a beneficial interest in movable property that a court will recognize.
- Supply
- Any form of sale, transfer, or exchange made for a price that triggers the requirement to pay GST.
- Consideration
- The payment or value given in return for a service or good.
The ruling in detail
Appellate Authority for Advance Ruling
M/s Loyalty Solutions and Research Pvt. Ltd. (LSRPL)
HAAAR/2018-19/01 dated 23.10.18 · Haryana
Questions before the authority
- Whether the value of points forfeited, on which money has been paid by the issuer of points on account of failure of the End Customers to redeem the Payback Points within their validity period would amount to consideration for 'actionable claim' other than lottery, gambling or betting and therefore would not qualify as 'supply' of either 'goods' or 'services' in terms of Section 7 read with Schedule III of the CGST Act, HGST Act or IGST Act and therefore would be outside the scope and levy of GST?
- Whether the value of points forfeited of the Appellant on which the money has been paid by the issuer of points on account of failure of the End Customers to redeem the Payback Points within their validity period can be treated as 'supply' of any other 'goods' or 'services' and consequently be chargeable to GST under the CGST, HGST or IGST Act?
Facts
The applicant operates a loyalty program where partners issue 'Payback Points' to end-customers. Partners pay the applicant an upfront fee for these points, which the applicant records as revenue. If points remain unredeemed after a 36-month validity period, the applicant retains the underlying value of those points as income.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether forfeited points constitute an actionable claim outside the scope of GST | No, it is not an actionable claim and is within the scope of GST The authority held that post-expiry, the points are no longer actionable claims and the retained amount is consideration for services |
| Whether forfeited points are a taxable supply of services | Yes, it is a taxable supply of services The amount is considered revenue for management services provided to partners |
The Appellate Authority upheld the original Advance Ruling, determining that the amount retained by the applicant upon the expiry of unredeemed points constitutes consideration for services provided to the partners. Consequently, this amount is subject to GST as a supply of services.
Reasoning
The authority reasoned that the loyalty program is a service provided to partners, and the consideration for this service includes both a fixed management fee and the variable component represented by the value of unredeemed points. It held that once the validity period expires, the points cease to be actionable claims and the retained funds become taxable revenue for the applicant. The decision turned on the interpretation of 'supply' under Section 7 of the CGST Act and the definition of 'goods' and 'actionable claims' under the CGST Act and the Transfer of Property Act, 1882.
Provisions relied on
- Section 7 of the CGST Act
- Section 2(1) of the CGST Act
- Section 2(52) of the CGST Act
- Section 3 of the Transfer of Property Act, 1882
- Schedule III of the CGST Act
For the practitioner
This ruling clarifies that **unredeemed loyalty points** retained by a program operator are treated as taxable consideration for services rendered to partners rather than non-taxable actionable claims. Practitioners should advise clients that such 'point expiry income' is liable to GST. It does not, however, provide a definitive test for all loyalty models, as it relies heavily on the specific contractual arrangement where the applicant is the primary manager of the program.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/haryana_haaar_2018-19_01_dtd_23.10.18.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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