Income Tax rules on EWallet/UPI transactions

February 24, 2021

Income Tax rules on EWallet/UPI transactions

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. Do you know the Income Tax rules on UPI? Read this article to know more.

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.

If you’re not aware of this, you need to know such funds are also taxable under the Income Tax rules.

With the advent of Mobile Banking, the use of UPI apps for digital payments has shot-up tremendously. A Unified Payments Interface or UPI lets you do real-time money transfer, it is accessible anytime, enables payment/collection of money, free of cost and stores multiple bank accounts. Just our income from sources like Fixed Deposit (FD) or Mutual Funds are taxable; similarly, there is also Income Tax on UPI transaction.

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.

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 instance, 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.

Another scenario where UPI tax is applicable is 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’.

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.

Considering the latest buzz around the UPIs, ICICI Bank now offers the Unified Payment Interface, which is available in the form of ICICI Bank iMobile Pay (specifically for ICICI Bank customers) and Pockets (available to both ICICI Bank and Non-ICICI Bank customers).

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