GST Applicable on Retained Fees from Expired Loyalty Reward Points
Haryana AAR ruled that retained fees from expired loyalty points are taxable under GST as management services rather than exempt actionable claims.
- Ruling
- HAR/HAAR/R/2017-18/4, dated 11.04.2018
- Dated
- 11 Apr 2018
- Authority
- 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
- Company asked if fees kept from expired reward points are exempt from GST.
- Haryana AAR ruled that retained fees for unredeemed points attract GST.
- Expired points lose their status as actionable claims once rights cannot be enforced.
- Retained fees count as payment for providing loyalty management services to partners.
In short
Loyalty Solutions operated a reward points program, charging partner merchants 0.25 INR per point issued to customers. Customers had 36 months to use these points against purchases. If customers failed to redeem their points before expiry, the points were forfeited, and the company kept the fees paid by merchants. The company asked whether keeping this fee counted as an actionable claim under Schedule III of the CGST Act, 2017, making it free from Goods and Services Tax (GST).
What has changed
How it worked before
Many businesses running reward programs assumed that unredeemed points or retained fees were actionable claims exempt under Schedule III of the Central Goods and Services Tax (CGST) Act, 2017, meaning no GST was due when points expired.
What has changed
The Haryana Authority for Advance Ruling (AAR) decided under order HAR/HAAR/R/2017-18/4 that expired reward points are no longer actionable claims because customers can no longer enforce any rights over them. Retaining the issuance fee after forfeiture is treated as payment for loyalty management services supplied to merchants. Consequently, this retention fee is a taxable supply of services under Section 7 and Section 15 of the CGST Act, 2017, and attracts GST.
Who this affects
Businesses that operate customer loyalty programs, offer reward points, or charge merchants fees for issuing vouchers and points.
An example
Suppose ABC Loyalty manages a reward program for clothing stores, charging store owners 0.50 INR for every point issued to shoppers. Shoppers have one year to redeem these points, after which any unused points expire and ABC Loyalty retains the collected fee. ABC Loyalty might wonder whether the income from those expired points is subject to GST. Based on the reasoning in order HAR/HAAR/R/2017-18/4, tax authorities consider this retained money as payment for marketing services, making it subject to GST.
What you should do
If your business keeps issuance fees or income from unredeemed reward points, review how you calculate GST on that revenue. Remember that an advance ruling binds only the company that requested it and its specific tax authority. You should consult a tax professional or apply for your own ruling before making changes to your GST filings.
If you do nothing
If a business assumes expired point fees are exempt from tax and stops paying GST on that income, local tax officers may issue a demand notice during an audit. The tax authority could treat the unpaid GST on retained fees as short payment under the CGST Act, 2017. This leaves the business liable for the original GST amount along with interest and heavy penalties.
The terms explained
- actionable claim
- A legal right to claim a debt or monetary benefit that can be enforced in court, which is generally kept outside the scope of GST under Schedule III.
- consideration
- The money or value given to a business in return for supplying goods or services.
- input tax credit
- The GST a business pays on its business purchases, which it can set off against the GST it collects on its sales.
The ruling in detail
Authority for Advance Ruling
M/s Loyalty Solutions and Research Private Limited
HAR/HAAR/R/2017-18/4, dated 11.04.2018 · Haryana
Questions before the authority
- Whether the value of points forfeited of the applicant on which money had 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 Central Goods and Services Act, 2017, Haryana Goods and Services 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 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 reward point-based loyalty program for partner merchants, charging partners an issuance fee of 0.25 INR per point issued to end-customers. Customers can redeem points against future purchases from partners within a validity period of 36 months. If points expire without redemption, the points are forfeited and the applicant retains the issuance fees collected from partners.
Ruling
| Question | What the authority ruled |
|---|---|
| Exemption of forfeited points as actionable claim | No, outside scope of actionable claim and taxable under GST Points lose character as actionable claims upon expiry |
| Treatment of retained fee on forfeited points as supply | Yes, treated as supply of services chargeable to GST Amounts to consideration for loyalty management services under Section 15 |
The Authority held that upon expiration of validity, reward points lose their character as actionable claims because end-customers can no longer enforce any rights over them. The retention of issuance fees by the applicant upon point forfeiture constitutes **consideration for supply of services** provided to partner merchants. Consequently, the value of forfeited points is taxable under GST.
Reasoning
The Authority analyzed Section 2(1) and Section 2(52) read with Schedule III of the CGST Act, 2017, alongside Section 3 of the Transfer of Property Act, 1882 regarding actionable claims. It held that while active points may represent actionable claims, expired points carry no legal right of enforcement, taking them outside Schedule III. The retention of issuance fees upon forfeiture constitutes earned remuneration and consideration for loyalty management services supplied to partner merchants, rendering it a **taxable supply of services** under Section 7 and Section 15 of the CGST/HGST Act, 2017.
Provisions relied on
- Section 2(1) of the CGST/HGST Act, 2017
- Section 2(52) of the CGST/HGST Act, 2017
- Section 7 of the CGST/HGST Act, 2017
- Section 15 of the CGST/HGST Act, 2017
- Schedule III of the CGST/HGST Act, 2017
- Section 3 of the Transfer of Property Act, 1882
For the practitioner
This ruling establishes that retained issuance fees or breakage income from expired loyalty points cannot be sheltered under the **Schedule III actionable claim exemption**. Tax practitioners representing loyalty program operators should note that unredeemed fee retentions upon point expiry attract GST as consideration for management services.
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/AAR/haryana-ar_04_2017-18_dt.11.04.18_lsrpl.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
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