GST on Forfeited Loyalty Points: Appellate Authority Ruling HAAAR/2018-19/01
The Haryana Appellate Authority for Advance Ruling decided that income from expired loyalty points is taxable as a service, not an exempt actionable claim.
- Ruling
- Not legible
- 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 forfeited point revenue is exempt from GST.
- The authority ruled that this income is payment for management services.
- Forfeited points are not considered 'actionable claims' under GST law.
- Revenue from expired points is now taxable as a supply of services.
In short
The company asked if the money they keep when customers fail to use loyalty points within three years is taxable under the Goods and Services Tax (GST). They argued this money was an 'actionable claim'—a type of financial right that is generally outside the scope of GST. The authority disagreed, deciding that this money is actually part of the fee the company earns for managing the loyalty program for its business partners.
What has changed
How it worked before
Many businesses assumed that money retained from expired loyalty points was a financial gain outside the scope of GST, similar to how certain debts or claims are treated.
What has changed
The authority ruled that this income is a variable part of the service fee charged to business partners. In practice, this means companies running similar loyalty programs must pay GST on the value of points that expire, as this is now classified as a taxable supply of services.
Who this affects
Businesses that operate loyalty programs, reward point schemes, or similar incentive platforms for other companies.
An example
Imagine a company, 'RewardsPlus', that manages a points system for a retail chain. If customers fail to use 10,000 points worth 10,000 rupees, RewardsPlus keeps that money. Based on this ruling, the tax department would likely view that 10,000 rupees as taxable service income rather than an exempt financial gain.
What you should do
If you run a loyalty program, review your contracts to see how you treat expired points. Remember that an Advance Ruling only binds the company that asked and its specific tax officer; it is not a law that applies to your business automatically, though it shows how the department views this income.
If you do nothing
If you treat this income as exempt and the tax department disagrees, you may face a demand for unpaid GST plus interest and penalties. A tax officer is not required to follow this ruling for your business, but they will likely use the same logic to argue that your income is taxable. You risk a lengthy dispute if you do not account for this tax liability.
The terms explained
- Actionable claim
- A legal term for a claim to a debt or a beneficial interest in movable property that is not in possession. These are generally excluded from the definition of goods and services under GST.
- Supply
- Any form of sale, transfer, or exchange of goods or services made for a price. Under GST, only transactions classified as a supply are subject to tax.
- Consideration
- The payment or value given in return for a service or good. It is the money or benefit that makes a contract legally binding.
The ruling in detail
Appellate Authority for Advance Ruling
M/s Loyalty Solutions and Research Pvt. Ltd. (LSRPL)
Not legible · 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, 2017, Haryana Goods and Services Tax Act, 2017 or Integrated Goods and Services Tax Act, 2017 and therefore would be outside the scope and levy of GST?
- Whether the value of points forfeited of the applicant 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 they issue 'Payback Points' to end-customers on behalf of partner clients. 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 are 'actionable claims' outside the scope of GST | No The authority ruled that post-expiry, these points are no longer actionable claims and the retained amount is consideration for services. |
| Whether forfeited points are taxable as a supply of services | Yes The amount is treated as a variable component of the service fee charged to partners for managing the loyalty program. |
The authority held 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. The authority rejected the applicant's contention that these forfeited points qualify as 'actionable claims' outside the scope of GST.
Reasoning
The authority reasoned that the entire consideration, including the portion retained from unredeemed points, flows from the partners under a contract for loyalty program management services. It determined that the retention of point expiry income is a **variable component of the service fee** and not an actionable claim. The decision relied on the definition of 'goods' and 'services' under the CGST Act, 2017, and the interpretation of the service agreement between the applicant and its partners.
Provisions relied on
- Section 7 of the Central Goods and Services Tax Act, 2017
- Section 15 of the Central Goods and Services Tax Act, 2017
- Section 98 of the Central Goods and Services Tax Act, 2017
- Section 100 of the Central Goods and Services Tax Act, 2017
- Schedule III of the Central Goods and Services Tax Act, 2017
- Section 3 of the Transfer of Property Act, 1882
For the practitioner
This ruling clarifies that income derived from the forfeiture of loyalty points in a B2B loyalty program model is **taxable as a supply of services** rather than being exempt as an actionable claim. It settles that such revenue is considered part of the overall management fee charged to partners. Practitioners should note that this decision emphasizes the contractual nature of the service over the technical classification of the points themselves.
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/loyalty_solutions_and_research_private_limited-23-10-18.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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