The Unified Payments Interface (UPI) system was launched in our country in 2016. Since then, digital payments have completely transformed the way transactions are conducted. India is rapidly moving towards a cashless economy, with UPI users turning their phones into virtual wallets, reducing the need for physical cash or cards. The speed, convenience, and absence of transaction charges have contributed to the immense popularity of the UPI system.
UPI offers benefits not only for the people but also for the government. Digital transactions enable better tracking, and the reduced use of physical cash has resulted in lower costs for printing and handling notes.
Income tax on UPI transactions:
According to the Income Tax Act, UPI transactions fall under “Income from other sources” as per Section 56(2). Taxpayers are required to report all UPI and digital wallet transactions when filing Income Tax Returns (ITR). It’s important to note that all digital transaction details are shared with the Income Tax Department.
If you receive more than Rs 50,000 through UPI or digital wallets, the amount will be considered “taxable income” subject to certain conditions.
Income tax on UPI transactions depends on specific conditions:
- UPI transactions below Rs. 50,000 are exempt from tax and do not require income tax.
- Gift vouchers worth Rs. 5,000 or more received through UPI or e-wallets from your company/employer will be taxable.
- Cashbacks received from digital wallets & UPI apps are considered “taxable gifts” under Section 56(2) of the Income Tax Act.
- According to the National Payments Corporation of India (NPCI) rules, UPI transactions of Rs. 1,00,000 or more are subject to income tax.
Sending money to friends:
Cash transactions between friends are common. When using UPI or an e-wallet to repay loans from friends, it’s important to understand the associated taxes. Repayments worth less than ₹50,000 are generally within the tax-exempt limit. If this limit is exceeded, it’s advisable to keep the transaction details for reference.
Interchange Fee on UPI Transactions:
The National Payments Corporation of India (NPCI) has recommended charging an interchange fee of 1.1% on UPI transactions above Rs. 2000 through Prepaid Payment Instruments (PPIs). This fee applies to PPI merchant transactions only, and Peer-to-Merchant and Peer-to-Peer UPI payments are exempt for customers.
UPI limit as per GST:
Similar to the Income Tax Act, the GST Act does not impose restrictions on UPI transactions. However, there are conditions for GST registration:
- If a person supplies goods only, the total turnover limit for GST registration is Rs. 40 lakhs.
- If a person provides services only, the total turnover limit for GST registration is Rs. 20 lakhs.
- If a person’s UPI transactions in a year exceed these limits, they must obtain GST registration.
