With the advent of technology in the space of finance, many are switching over to electronic transactions. Not only does it offer ease of use, but it also empowers individuals to manage their transactions and finances in a flexible manner.
The user-friendly nature and the convenience offered by e-wallets and UPI (Unified Payments Interface) apps aren’t the sole reasons that warrant its use. The world, as we know it, depends on technology for innovation. It’s this dependency that has established a foundation for the future of personal finance.
While the vision of a digital future and the convenience on offer is the sole reason, setbacks like the coronavirus have fueled its use even further. Another major contributor to the popularity is cashback offers on e-wallet and UPI transactions. Nobody would say no to the possibility of getting money back for each and every transaction.
At the time of reading this, you may have a fair idea of the widespread use of e-wallets and UPI apps, considering that you and those around are users. But, how big is the e-transaction bubble?
Well, UPI transactions in India touched the INR 100-crore figure in October 2020, according to the National Payments Corporation Of India (NPCI). Not only that, as many as 189 banks can be found on the UPI platform which recorded as many as 180 crore transactions in September 2020. The overall value of these transactions is estimated to be around INR 3.29 lakh crores.
So, what’s the dilemma? Why isn’t everyone adopting e-transactions if it’s ‘the best’ thing to happen to financial dealings?
Aside from obvious facts like access to mobile phones that support e-wallet and UPI apps, and a stable internet connection, perhaps one reason could be taxation?
Yes, if you didn’t know already, e-transactions do attract tax. But like any taxation guidelines proposed by the Income Tax of India, e-transactions have their own.
What are these guidelines and regulations chalked out by the Income Tax Department? Let’s take a look.
What’s the underlying principle for taxation, you ask?
Where there is income, there is tax.
Don’t be fooled by the common misconception that electronic payments, specifically e-wallet and UPI transactions, cannot be tracked by the Income Tax Department. Remember uploading KYC (Know Your Customer) documents or completing compulsory KYC procedures for banking and finance services?
Since an e-wallet or a UPI transaction is electronic in nature and linked back to your personal details (via KYC), the Income Tax Department tracks every transaction. When filing your Income Tax return (ITR), you have to abide by certain rules and regulations. To be specific, any income gains like savings, rent, capital bonds, mutual funds, stocks, shares etc., have to be mentioned when filing ITR.
Similarly, any gains from e-wallet and UPI transactions have to be declared at the time of filing ITR.
So, what are some of the basic guidelines by the IT department for e-transactions? Here are 4 you should know about.
E-transactions: A Win-Win for The Government and The Taxpayer?
There’s another reason why people are opting for e-transactions through e-wallets and UPI platforms and the government is pushing more people to do so. As per Section 44AD of Income Tax Act, 1961 a Resident/Firm/HUF that has not claimed tax deduction — under Section 10AA or 80IA tO 80RRB — is required to pay 6% of the turnover or gross as tax if the mode of the transaction is digital, as opposed to 8% for non-digital transactions.
Cross-platform, widely accepted by all banks, quick, convenient, free-to-use, taxpayer-friendly, cashbacks, hassle-free — these are the reasons why UPI and e-wallet apps are a fan-favourite amongst the masses. For the government, electronic transactions mean more tax collection and a surefire way to limit cash transactions that are unaccountable and untraceable.
As things stand, cash transactions will not ebb away into obscurity; not now anyway. Having said that, given the nature of e-transactions and the assortment of user-centric benefits it has to offer, the era of a digital ecosystem for financial transactions, widely accepted by all isn’t too far away.