Is receiving money from friend through e-wallet taxable?

By Adhil Shetty

With the time to file your income tax return coming nearer, it is important to know which receipts other than salary are taxable and which are not. Here, we'll look at some common forms of non-salary receipts; receiving money in your e-wallet, cashback rewards, gift vouchers received as reward or gifts, interest received on bank savings and FDs, mutual fund gains. We will look at how they are to be assessed, and whether you need to pay taxes on them.

1. Receiving money in your e-wallet
Through e-wallets and UPI, it has become easy to send and receive money through your phone. Often, debts to friends may be settled in this manner. For example, you're at a restaurant with your friends, and you pay the whole bill, while everyone pays you through an app or via UPI. Do such receipts need to be declared in your returns? Simply, such receipts may be treated as gifts, and gifts up to a sum of Rs 50,000 are exempt from gift tax. But if bigger amounts are transferred between friends, the entire amount will be subject to tax.

If the receipts of your wallets or savings account are settlements of debts owed to you, you don't need to pay taxes on them. However, in case there is further scrutiny of your accounts by the Income Tax Department, you may want to take a written note from your debtors stating that the transaction was indeed a settlement of debts.

2. Cashback rewards
You can earn cashback through e-commerce services, transaction through digital payments apps, or through credit cards. Often, people use a particular online service or payment tool only because of the possibility of earning a cashback.

For example, you order food worth Rs 500 through a food app and get Rs 50 as cashback. This money may be credited to the bank account linked to your payment tool, or to your e-wallet, or your credit card. So, is this cashback considered an income for you and should you declare it while filing your returns? For individual tax payers, when the aggregate value of the sum received without consideration is above Rs 50,000 in a financial year, under Section 56(2) of the Income Tax Act, this entire sum would be subject to a gift tax in the hands of the individual. Such income would have to be declared under the head 'income from other sources'. So, if the aggregate cashback rewards and monetary gifts during a financial year doesn't exceed the Rs 50,000 ceiling, you need not pay taxes on it.

3. Gift vouchers received as reward or gifts
If you have received a gift voucher from your employer for any reason, and the value of such voucher exceeds Rs 5,000, then it would be subject to tax under income tax rule-3(7)(iv). However, gift vouchers received from friends and family over the value of Rs 50,000 in a financial year are subject to tax under the head 'income from other sources'. Income received from relatives such as spouse, siblings, children, or any lineal ascendant or descendant of the individual or the individual's spouse, is exempt from tax in the hands of the recipients.

However, income generated from such gifts may invoke provisions for the clubbing of income under the Income-tax Act in some instances, and it may get taxed as per the applicable rule. So, getting gifts from friends and relatives is great, but beware of the applicable taxes.

4. Interest received on bank savings and Fixed Deposits (FD)
The aggregate income received as interest from all your savings accounts during the financial year up to the limit of Rs 10,000 is exempt from tax under Section 80TTA. Interest income above the threshold limit is taxed as per the applicable tax slab rate for the individual. Interest earned on fixed and recurring deposits is treated as 'income from other sources' fully taxable as per your tax slab. For senior citizens, FD interest up to Rs 50,000 in a financial year is exempt from taxation.

5. Mutual fund gains
Gain from investments in mutual funds is subject to tax depending on the nature and tenure of investment. If the period of investment in equity-oriented mutual funds is more than one year, then it is called a long term investment and the gain accrued from such investment is called long-term capital gain (LTCG). Whereas, if the investment period is less than one year, it is called a short term investment and the gain thereof is called short-term capital gain (STCG). If the LTCG from equity mutual funds is more than Rs 1 lakh in a financial year, will be taxed at 10 percent. STCG from equity mutual funds is taxed at 15 percent rate.

Under debt mutual funds, gains on investment for a period of more than three years is considered as LTCG whereas with a tenure less than three years, you have STCG. LTCG from debt mutual fund is taxed at 20 percent with indexation benefit, whereas STCG is taxed according to slab rate applicable on the individual.

So, if you have received any of the incomes mentioned above which is other than your salary income, it's always better to check whether you are liable to pay tax on it, and then to file your return without making mistakes. If you have any doubts, do consult an accountant or investment planner.

(The author is CEO, Bankbazaar.com)