RBI's Gift: UPI Tax Payment Limit Hiked To Rs 5 Lakh Transactions From Rs 1 Lakh; How Will You Benefit?

In a major good news, RBI governor Shaktikanta Das announced UPI tax payment limit has been increased to Rs 5 lakh per transaction compared to current Rs 1 lakh. Simply put, UPI transactions above Rs 5 lakh limit will be eligible for tax payment, while transactions below this limit will be tax free.

Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.

UPI also caters to the "Peer to Peer" collect request which can be scheduled and paid as per requirement and convenience.

As per Tax2Win, UPI transactions exceeding Rs.1,00,000 are subject to tax as per the provisions stated by NPCI. It is the maximum amount that you can transfer using UPI. Any transfer above this amount is subject to tax.

Now, this threshold has been expanded to Rs 5 lakh limit. This announcement was made on August 8 when RBI decided to keep repo rate unchanged for the ninth time in a row at 6.5%.

There are a host of taxes on UPI transactions.Tax2Win explains in details about taxation on UPI transactions apart from Rs 1 lakh limit. Here's what they are:

1. UPI transactions upto Rs.50,000 are exempt from tax. Any amount exceeding this limit, received through UPI apps or digital wallets, is treated as a gift and taxed as per the provisions applicable to income from other sources. However, if the money received is a repayment of any sum owed to you, it will not be taxed.

2. As per Income Tax Rule 3(7)(iv), any gift voucher received from the employer through UPI or e-wallets, the amount of which exceeds Rs.5000, is subject to UPI tax. Also, any non-reporting of income through e-wallets might result in assessment under section 147 of the Income Tax Act.

3. The users of e-wallets often receive cashback for making online payments using the wallets. This has resulted in an increase in the use of e-wallets. Any sum you have received through digital wallets or UPI apps is termed as a gift and is chargeable to tax.

4. As per section 56(2) of the Income Tax Act, any cashback or gift voucher that exceeds Rs.50,000 during a fiscal year is taxable. Also, gift vouchers from friends and family exceeding Rs.50,000 are taxable.

In the June 2024 policy, RBI had introduced auto-replenishment of UPI Lite wallet, which allows a customer to load his UPI Lite wallet upto ₹2000/- and make payments upto ₹500/- from the wallet.

To enable the customers to use UPI Lite seamlessly, and based on the feedback received from various stakeholders, RBI proposed to bring UPI Lite within the ambit of the e-mandate framework by introducing an auto-replenishment facility for loading the UPI Lite wallet by the customer, if the balance goes below a threshold amount set by him/her. Since the funds remain with the customer (funds move from his/her account to wallet), the requirement of additional authentication or pre-debit notification is proposed to be dispensed with. Related guidelines in respect of the above proposal will be issued shortly.