Calculate Income Tax on Google Pay Transactions
Apps for digital payments like Google Pay are very quickly replacing cash in the traditional method of making payments. Yet, in order to replace something as prevalent and frequently used as cash, it must offer a sizable number of benefits, particularly with a conservative group of society like the Indians, who tend to be highly cautious of technology.
Do you know how to calculate income tax on google pay transactions?
Some might be thinking, is Google pay even taxable?
Well, let’s find out.
Apps such as Google Pay operate on a technology known as UPI. UPI also referred to as United Payments Interface is an online system that allows users to control all their bank transactions from different banks by using a mobile phone. UPI was launched in 2016, under the direction of the then RBI Governor Dr. Raghuram Rajan. The interface functions in the role of an intermediary for banks and its customer.
Some benefits of UPI are as follows:
- The main benefit that comes with UPI is the security of the cash.
- It is possible to make small transactions, without having to withdraw the funds from the bank thus protecting it from theft. There is also the convenience of completing transactions as opposed to the transfer through a bank.
- With UPI it is possible to complete transactions as fast as cash transactions and with a degree of precision that is superior to an actual cash transaction.
However, there was one incident that was the main driver of this transition toward digital payment.
- On the 8th of November 2016, just 2 months following the date that UPI apps were launched on various app stores it was announced that the Government of India announced an immediate demonetization of Rs500 and Rs1,000 currency notes, with immediate effect and also imposed an upper limit in the cash that can be taken out of ATMs since the government provided cash machines with the latest notes when the time they had been issued.
- Since there’s an upper limit of Rs25,000 for the amount of cash that a person can carry at any point in time and there was a huge cash shortage across the country, leading to severe anxiety.
- This was when the awareness about UPI started to grow and apps, such as Google Pay began to come to the forefront.
- The companies who operated these apps quickly set out to provide every vendor with the necessary infrastructure to accept payments via their apps, thus making it possible for everyone to accept UPIs which made it easier for people to use these applications, at a minimum for as long as the scarcity of cash persisted.
- However, once people started using UPIs more frequently they saw the benefits as well.
- Even after the crunch in cash was over and ATMs were upgraded with new notes, users were still inclined to prefer UPI transactions over cash transactions.
- When you get over the petty cash transaction and begin making larger payments with UPIs like paying salaries or rent payments through these apps, the issue of tax becomes a concern.
Taxes in India
If you’re in India, you’ll be charged Goods and Services Tax (GST) on purchases.
GST is a taxation dual model that allows both Indian states and the Indian Central Government to have taxation on goods and services. In India, the GST rate is categorized into four categories for numerous products and services.
They are:
- 5% GST
- 12% GST
- 18% GST
- 28% GST
GST comprises three kinds of taxes that include central tax (CGST), state tax (SGST) as well as integrated tax(IGST). Google’s site that offers the services and the location where you purchased decide which tax will be added to your purchase.
Taxes in India:
- Central GST (CGST): 9%
- State GST (SGST): 9%
- Integrated GST (IGST): 18%
The tax calculation for UPI transactions
Based on the previous discussion, UPI is just a method of paying and receiving money. It helps in the transfer and payment of income but is not an independent source of income in itself.
- Thus, tax on income is determined in the same manner the way it’s determined for non-UPI transactions according to what the source of income is as well as the provisions that apply to it in the Income Tax Act.
- At the close of each year receipts received from UPI will be added with receipts from other sources to calculate gross turnover or gross income.
- Then, we subtract all deductions that are allowed under the rules of the Income Tax Act and calculate the net tax-deductible income.
- If it’s an individual, we can apply the tax revenue to the tax-free income slab for the fiscal year to figure out what rate of tax applicable to this income.
- That is the way we calculate the tax burden. There is a provision in the Income Tax Act that was specifically designed to promote UPI payments.
- This is the section that was added under section 44AD, which deals with the idea of a presumptive tax.
- Smaller businesses that have a turnover of fewer than two crores, are not required to keep books of accounts and aren’t required to undergo audits.
- They are able to opt for what is called a “presumptive tax” for five years during which they are exempt from having to disclose the details of their income.
- During the period, the government is likely to consider the tax-deductible income of the company at 8% of its revenue, or in a flat.
- However, if the company has earned income from digital transactions and the resulting turnover is digital, it is classified separately with only 6 percent of that income will be considered tax-deductible income, which will reduce the tax burden.
Small businesses will benefit greatly from the transition to digital. The above discussion is from the viewpoint of the individual who receives the money.
But what happens to the person who makes the payment? Does digital payment have any effect on the person who is making the payment, as far as taxation is related? It can be “yes”.
- This is the case in TDS. If a person makes an online payment but still must be aware of the type of transaction that they are making.
- If the transaction requires TDS to be deducted, and an online TDS payment is to be made prior to making the payment then the TDS calculation has to be completed and then reduced by the total amount of the payment as well as the specifics of the transaction must be are entered when doing filing the TDS tax return.
- Additionally, the tax department, also accepts online TDS payments. The tax department accepts online TDS payments through UPI.
Conclusion
The tax department continuously analyzes the evolving environment of not only the way income is earned, but also how it’s transferred to determine the negative or beneficial impact that the change could impact its revenue. It implements new policies via circulars and announcements to help mitigate the effects of changes.
Therefore, it can be challenging to keep track of and understand the constant changes. Tax consultants who are professionals are not just constantly aware of the latest developments and trends, but also know how they fit into the complexities of the complex tax system and the effects they could cause in ways that aren’t able to be appreciated by those who aren’t aware of the big overall picture.
FAQ’s
Google’s site that offers the services, along with your purchase location determines the tax that will be added to the purchase. These tax rate are Central GST (CGST) 9.9 percent and state GST (SGST) 9.9 percent.
The payment in the amount of one thousand or more for credit card charges is required to be reported according to CBDT. If one makes a payment of more than Rs 10 lakh to pay credit card debts during a fiscal year (in any way) These transactions also must be disclosed to the tax department for income.
The government has enacted the zero-cost structure for UPI transactions beginning January 1st, 2020. This means that UPI transactions are non-existent for merchants and users alike.
Google is poised to give India’s 2 percent equalization tax that will be introduced in April 2020 for customers whose ads are displayed in India beginning in October. The levy will be applicable in the event that both the buyer as well as the seller aren’t based in India in the event that the advertisement is seen in India.
UPI transactions are gaining popularity at a rising rate in the modern era as they are typically accepted by all banks, quick and simple, to use, cashback-enabled, and hassle-free. Also, digital transactions boost govt. revenues from taxes offer a safe way to cut down on unauthorized and unrecorded money transfers.
