I am writing to seek your expert opinion and guidance regarding the tax treatment of reward points earned by employees in my organization.
As a context, employees in my organization receive 150 points per reward, which accumulate over time and can be redeemed against products from a catalogue on company's intranet page. However, I have recently discovered that regardless of whether these points are redeemed or not, they are added to our income. Additionally, I have been informed that the points are converted into dollars at a rate of 1 point = $1 and then converted into Indian Rupees (INR) at a conversion rate of $1 = ₹82 before being added to our income for tax purposes.
In my specific case, during the fiscal year 2022-23, I was awarded a total of 600 points. To my surprise, an amount of ₹49,800 (₹82 × 600), grossed up for tax at a rate of 30%, has been added to my income for tax purposes. It is important to note that I have not yet redeemed these points.
Upon reviewing the catalogue, I have observed that the products available for redemption against 600 points can be purchased from market at much lower than even ₹5000. This raises concerns about the fairness and proportionality of the tax treatment applied.
I would greatly appreciate your expert opinion on the rationale behind this tax treatment and the methodology used for calculating the grossed-up amount. Your insights will enable me to better understand the situation and allow me to address this matter appropriately with my organization.
Thank you for your time and attention to this matter. I look forward to your valuable guidance and prompt response.
CAclubindia
