I have never really answered this. I just nod graciously as saying 'thank you' sounds odd. If anything I would return it with 'and you'.

When I SNEEZE, people often say, Bless you! I'm too busy sneezing to say anything. Nobody has ever said, GOD bless you ... to me. So I've never had to answer the full version.

"God bless you" is often used as a response to sneezing. I think it comes from the Middle Ages, when a sneeze could mean the Black Plague, and then death. It is a very old custom. In this case you would reply, "Thank you." If someone says "God bless you" as a greeting, you can say many things, such as "thank you," "and you," or even just smile.

Thank you

Thank you