In India, UPI transactions have become the most popular way to handle money transfers. According to Business Standards, in the last month, the number of UPI transactions saw a surge of nearly 85%. In August 2022 alone, UPI processed over 6.5 billion transactions, handling a whopping 10.72 trillion rupees!

The Evolution of UPI in India

Since its inception in 2016, there have been several incidents that acted as catalysts for UPI transactions.

• In just two months after the UPI apps had launched their base in India, the government announced the demonetization of 500 and 1000 rupee notes along with restricting the maximum amount that can be withdrawn from ATMs to 25,000 rupees.

No wonder, UPI apps were a blessing!

• The announcement of covid 19 lockdown in 2020 further catapulated the base and business of all UPI apps. As of 2022, there are many third-party UPI apps that are being used by millions!

• Google Pay, Paytm, Phonepay, MobiKwik, Whatsapp Pay, Amazon Pay, BHIM, Reliance pay – The list of UPI apps now contains more than a dozen!

People are sceptical about the tax

Even though the UPI apps are so popular and make lives easy in several aspects, there still exists a set of people that are scared about getting caught by the income tax department if the number of transactions exceeds a certain limit.

Will UPI transactions attract unnecessary income tax levied upon individuals if got caught? What is the reality of fearing UPI transactions?

UPI transaction is just another way of transacting money just like a cash transaction. Be it cash transactions, bank transfers or UPI as a responsible citizen everyone must file their ITR and pay if required.

I have discussed more on income tax in this article.

What is the reality of tax calculation on UPI transactions?

• As we discussed earlier, UPI is not a source of income, it is just a way that facilitates money transfer. It is similar to any other way of transferring money like a bank transfer or cash transfer.

• While calculating the gross income, all sources of income including incoming receipts in UPI transactions are considered. After this, the allowed deductions are reduced from the gross income to calculate the net income.

• If this net income exceeds 5 lakh per annum, then you are liable to pay income tax.This means it is needless to fear UPI transactions. UPI transactions are very convenient, easy and affordable. Transactions through UPI are accurate, reliable, secure and fast enough.

Benefits for small businesses using UPI

• A new provision added under section 44AD encourages the use of UPI transactions in small businesses. Businesses having an annual turnover of less than 2 crores have a special concession under this provision called presumptive tax.

• These businesses can opt to be exempted from disclosing their income for a period of 5 years. During this time their income tax will be calculated only on 8% of their initially disclosed turnover.

• However, if the transactions carried out are digital in nature these businesses have to pay income tax only on 6% of their disclosed income. This is one way of availing of the benefits along with enjoying the convenience offered by the UPI apps.

What about sending money through UPI apps?

While sending money through UPI apps it is to be noted that any TDS (Tax deducted at source) must be disclosed if required. Also, as a responsible citizen, it is your duty to disclose all monetary transactions and income streams to help nation-building.

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