Know about the tax implications of UPI transactions in India. Find out how UPI transactions are taxed and how to report them in your ITR.
The rise of UPI, or Unified Payments Interface in India has made transactions easier, fast and more convenient.
However, with the increase in digital payments, it is essential to understand the tax implications of UPI transactions.
What are UPI Transactions?
The Unified Payments Interface (UPI) is a user-friendly and real-time payment solution that facilitates inter-bank transactions.
UPI transactions can be made whenever requested by the receiver of payment. You can link multiple bank accounts in one mobile app and make payments using your bank account number and Indian Financial Security Code (IFSC).
Is UPI Taxable?
The good news is that most regular UPI transactions are tax-free. You don’t need to worry about paying income tax on money you send or receive through UPI.
Tax on UPI Transactions
UPI transactions are subject to income tax rules in India. Section 56(2) of the Income Tax Act applies to all e-wallet transactions, classifying them as ‘income from other sources.’
When submitting your ITR, you must provide detailed information about your salary and other sources of income, including funds received from an e-wallet or UPI app.
Taxability of UPI Transactions
UPI transactions are subject to tax in the following situations:
- UPI transactions exceeding Rs. 50,000 are taxed as income from other sources.
- Gift vouchers received through UPI or e-wallets exceeding Rs. 5,000 are subject to tax.
- Cashback or gift vouchers exceeding Rs. 50,000 during a fiscal year are taxable.
- UPI transactions exceeding Rs. 1,00,000 are subject to tax as per NPCI guidelines.
How to Report UPI Transactions in ITR
When filing your ITR, you must report all UPI transactions, including those made through e-wallets. You can connect with tax experts who can help you file your ITR accurately and within the deadline.
Important Points to Remember:
- Tax Slabs: The tax you pay depends on your income tax slab and other deductions.
- Consult a Tax Professional: If you’re unsure about the tax implications of your Digital payments, it’s best to consult a tax professional for personalized advice.
- Keep Records: Maintain records of your UPI transactions, especially if you earn significant cashbacks or receive large gift vouchers.
Benefits of UPI Transactions
Some benefits of UPI transactions include:
- Quick and convenient transactions
- No additional charges
- Taxpayer-friendly
- Foolproof method for reducing cash transactions
- Increases tax revenue for the government
While UPI transactions themselves are generally tax-free, it’s essential to be aware of the tax implications in specific cases. Understanding the tax rules can help you avoid any surprises and ensure compliance.