A detailed Guide on applicability of Income Tax rules on E-Wallet or UPI Transactions

A detailed guide - Income Tax rules - E-Wallet - UPI transactions - Taxscan

UPI apps have grown by leaps and bounds. Right from using the e-wallet or UPI for grocery shopping to making a high-end purchase, it is quick, convenient and easy to perform any cashless transactions.

While the transaction via e-wallets and UPI transactions have increased manifold in the current times when there are restrictions in respect of withdrawal from the same bank ATM and there are fee charges and people prefer to go cashless. There are some implications of these e-wallet or UPI transactions that you need to have an understanding of.

At the time of filing Income Tax Returns (ITR), you do not just need to provide your salary details, but also income received from other sources like receiving funds from an e-wallet or UPI app. Even if you think that money received from UPI may not get traced, the fact is the Income Tax Department of India traces every transaction, since it is done electronically.

Circumstances where UPI transactions are Taxable

  1. Transfering Money via UPI above Rs.1 Lakh

Whenever you want to send or receive money through your mobile, you can simply do it with a UPI app. If you have taken funds from any relative or friend, you can settle the debt easily with an e-wallet. The maximum limit for transferring money is Rs 1 lakh. But, if the transfer exceeds the said limit, the amount is subject to tax.

  • Cashback Rewards above Rs.50,000

These e-wallets let you earn cashback rewards. This is also one of the reasons for people to increase use of the online payment app, as there is a possibility of getting a cashback. For Example, if you order food at Rs 500 and use UPI for making payment, you may opt for cashback that directly gets transferred to your bank account. Even cashback is taxable if the amount is above Rs 50,000 in a financial year, under Section 56(2) of the Income Tax Act.

  • Taxability of Gift Vouchers

The UPI tax is applicable when your employer offers a gift voucher, which is above Rs 5,000, it is subject to taxes under the Income Tax rule-3(7)(iv). Vouchers over the value of Rs 50,000 received from family or friends in a financial year are subject to tax under the head ‘Income from other sources’.

Internet Banking vs. UPI

While Internet Banking and Mobile Banking require a customer to go through a series of steps, UPI is a great alternative to eliminate all of the stress of sending and receiving money. It is instant and convenient. To get started with a UPI app, all you need is a unique ID, which holds all the data in an encrypted manner protected by a PIN. This makes the process faster and you do not have to feed in details every time you perform a transaction.

Support our journalism by subscribing to Taxscan AdFree. We welcome your comments at info@taxscan.in

Related Stories