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Credit Cards•5 min read•2026-03-18

How Credit Card Cashback Works: Earning, Caps, and Real Value vs Reward Points

FG
Funngrow FinTech ResearchConsumer Credit Insights
Cashback credit cards have become India’s most popular financial products because of their simplicity: you spend money, and a fixed percentage returns to your account. But understanding how cashback is calculated, credited, and capped helps you maximize your net financial return.

1. The Mechanics: How Cashback is Funded

Every time you swipe or enter your card online, the merchant pays an interchange fee (typically 1% to 2%) to the card network (Visa, Mastercard, RuPay) and the issuing bank.

Cashback cards share a portion of this fee—along with partnership commissions from merchant tie-ups—directly back with you.

2. Statement Credit vs Wallet Reward

Direct Statement Credit: The earned cashback automatically reduces your outstanding credit card bill in the next billing cycle.

Third-Party Affiliate Cashback: Platforms like Funngrow reward you with additional cash rewards when you apply through partner links, which you can withdraw directly into your bank account via UPI.

3. Understanding Category Caps and Exclusions

Most cards set a monthly maximum cap on high-earning categories (for instance, ₹1,000 max cashback per month on 5% dining).

Transactions on fuel, rent payments, wallet loading, and government taxes are generally excluded from standard cashback accrual.

Frequently Asked Questions

Is credit card cashback taxable in India?

General cashback received as a discount or rebate on personal purchases is not treated as taxable income under the Indian Income Tax Act.

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