Tax implications of payments and transfers through UPI
June 01, 2023
Only until a few years ago, it would have been a crazy thought to think a card, either debit or credit, would become a popular medium of making payments let alone making payments through a mobile phone app. Fast forward a few years and that is exactly what has happened with the explosion of transactions paid through various UPI or e-wallet apps. Today one can pay for almost anything ranging from vegetables to insurance through any of the numerous such apps. What is more significant, however, is that almost any business, from a street vendor to a lavish showroom would accept payment through this mode of payment.
The popularity of these apps didn't happen overnight nor did it happen for no reason. Their popularity explosion can be attributed to several factors but the key ones are
1. Ease of money management
2. India's demography
3. Ease of onboarding
Ease of Money Management
These apps help remove the issues that come with handling physical currency. To name a few, the need for maintaining accounts of transactions, providing change for the difference of amount when a rounded amount is paid for transaction, safety and security of physical money.
India's Demography
A younger population is always more receptive to new ways. The population of India with an average age of high 20s is, therefore, great for acceptance of new technology. This is one of the key reasons why India witnessed the boom in the adoption of these apps to make payments as well as to transfer money.
Ease of Onboarding
These apps obviously had to remove or at least reduce barriers in anyone wanting to use the apps. This means individuals can start using any of the apps for either making payments or transfers and businesses for accepting payments for their services and/or products with little to no technical know-how. All one needs is a few basic details to complete the signup process of the app.
Tax Implications
All these advantages, however, come with some responsibilities on part of the user. Since all these apps are just another mode of exchanging money, the money itself is subject to appropriate tax rules. Also, since these are all electronic transactions it is easy to track them when required by the concerned authorities. Therefore, any funds received through such apps and e-wallets are required by law to be declared. Some of the tax implications for different usage are:
Income received i.e., the payments received towards a service or product provided to a customer is taxable just as any other revenue would be.
If, however, the money you received was from a friend or family then it may be considered as a gift and maybe exempt to the extent of Rs.50,000. Beyond this limit, however, the amount is taxable. Some of the examples for such a situation could be sharing restaurant bills or cab fares, lending money to help out, etc.
Another situation where such a transaction may not be taxable is for payments you make towards the settlement of any debts. But in this situation, one may need written notes from debtors as proof of debt payment.
Conclusion
It is no wonder with all these advantages these apps have gained such widespread popularity but as mentioned before just be aware of the tax responsibilities and one can enjoy the comfort these apps provide with no issues waiting in the future.
Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.
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