Demonetization proved to be a boom for mobile wallets. Cashless is the new buzzword in India. It will not be an exaggeration that mobile wallets are one of the synonyms to become Cashless. In my post, Cashless Payments – 15 ways to become a cashless person i shared that mobile wallets are one of the convenient ways to go cashless. To be very honest with the readers, till date i have not come across a single post discussing mobile wallets and income tax angle. Though it might not be relevant in all the cases that we will discuss later in the post. I thought of sharing my views on the same :).
Not many people in India are aware that Mobile Wallets are regulated by RBI. As on date, 40 companies are granted a mobile wallet license and out of these 25 mobile wallets are operational. RBI refer these wallets as pre-paid payment instruments. There are specific guidelines issued by RBI related to these instruments. Most of the popular mobile wallets are semi closed like Paytm, Mobikwik, PayU etc. Open wallets can be offered only by the banks like SBI Buddy, HDFC Payzapp, ICICI Pockets etc.
Limitations for Semi Closed Mobile Wallets
As per RBI guidelines, there are following limits for semi closed pre-paid payment instruments or mobile wallets.
Category A: Upto Rs 10,000/-: The wallet can be issued by accepting min details of the customer. The outstanding amount at any point of time cannot exceed Rs. 10,000/-. The total value of reloads during any given calendar month cannot exceed Rs. 10,000/-. These can be issued only in electronic form.
Category B: From Rs 10,000/- to Rs 50,000/-: The wallet can be issued by accepting any ‘officially valid document’ defined under Rule 2(d) of the PML Rules 2005, as amended from time to time. These can be issued only in electronic form and should be non-reloadable in nature. The list of documents includes the passport, the driving licence, the Permanent Account Number (PAN) Card, the Voter’s Identity Card, job card issued by NREGA, Aadhaar Card or any other document as notified by the Central Government in consultation with the Regulator.
Category C: Upto Rs 1,00,000/-: FULL KYC is MUST and mobile wallets are re-loadable in nature. The balance cannot exceed Rs 1,00,000/- at any point in time.
Please note that there is the separate limit for re-loading and spending. Your spending cannot exceed Rs 50,000 during the year if the KYC is not done. Therefore, technically, the max spending limit per month is Rs 4166 that is too less post demonetization. If your spend exceeds Rs 50,000 during the year then it is mandatory to quote PAN. As i understand, KYC is mandatory in such cases.
Now you must be wondering Why i am not discussing the core topic of post i.e. is my spending through mobile wallets reported twice to Income Tax department? Hope you agree that it is important to understand the background before we discuss core topic.
Why is it imp to get KYC done?
Though mobile wallets were insisting the customers get KYC done even before demonetization but post demonetization it is more important and required. Before demonetization, I used to limit my balance on a mobile wallet upto Rs 10,000/- and spending within Rs 3k per month i.e. only for small value purchases. Personally, I prefer credit card payments. I also started using UPI or Unified Payment Interface as i find it more convenient.
On the contrary, a large chunk of people still prefers mobile wallets because of cashback offers. Secondly, post demonetization there is a sharp increase in mobile wallet transactions. Therefore, post demonetization i observed large no of people feel the need for KYC compliant wallet to increase the limit from existing Rs 10,000 to Rs 1,00,000. Recently, our apartment complex organized a camp for KYC of one of the popular mobile wallets. Trust me out of 1000 residents, approx 400 opted for KYC. These kinds of camps are now a popular site for community events as it is a big opportunity for mobile wallets.
Mobile Wallets – Is Your Transaction Reported Twice to Income Tax?
Here comes the big question. There is a misconception that transactions over mobile wallets are not tracked or traced. As the mobile wallets are RBI regulated therefore it is imperative that any transaction through mobile wallets can be tracked and traced by income tax department. Let me clarify that my key concern is only on dual reporting or transaction getting reported twice. There is NO CLARITY on this point. Personally, i believe that each and every transaction both online and offline should be tracked from a tax perspective.
Now let us understand what i meant by dual reporting of the transaction. As i explained in my previous posts on the same subject that transaction through mobile wallets is a two step financial transaction. Firstly, you need to load the money in your wallet. This can be done online through credit card, debit card, net banking, IMPS or UPI. Alternatively, you can load money at designated outlet through cash. Once the money is loaded then you can spend the money from your mobile wallet. The point to note is that assuming i have KYC compliant mobile wallet and i load the wallet with Rs 10,000 through my credit card. In this case, this transaction is already recorded with Income Tax i.e. i spent Rs 10,000 through my credit card. The banks don’t make any differentiation between payment, spend, purchase or if you load money on a mobile wallet through credit or debit card. From a financial perspective, it is a transaction through credit card/debit card/bank account.
As i understand if your wallet is basic one i.e. category A and you are spending not more than Rs 50,000 p.a. then you need not worry. In this case, the transaction will be recorded only once i.e. at the time you load your mobile wallet. As it is basic wallet and KYC is not done therefore the transaction may not be tracked and traced. It is similar to all other small value transactions where PAN or KYC is not required.
So far so good, you are not hiding anything from income tax department. Assuming you load your mobile wallet with Rs 5,000/- and spent this amount through the basic wallet i.e. category A. The income tax department knows that it is single transaction from your account through credit card/debit card/bank account.
In my opinion, the problem arises once the KYC is done for mobile wallets. In this case, each and every transaction is linked to your PAN or KYC document. In this scenario, going by the same example as i quoted earlier that my wallet is loaded with Rs 10,000. I spent the same amount through mobile wallet. Let say, one fine day income tax department decided to PULL out all the transactions through mobile wallets. I am not sure it might be happening currently i.e. all the mobile wallet transactions getting reported to income tax department. In such a scenario, as my mobile wallet is KYC compliant therefore spend/purchase of Rs 10,000 will be reported against my PAN or KYC document.
Now HOLD ON, this amount of Rs 10,000 spent through mobile wallet is already reported to income tax department as i used my credit card to load the money on Mobile wallet. Thus my same transaction will be reported twice to the income tax department. To summarize, in actual i spent only Rs 10,000 but it might be reported twice i.e. once by the credit card provider and secondly by mobile wallet or in total Rs 20,000 is reported instead of Rs 10,000 as both were electronic transactions.
How to Fix this Issue?
As it is possible to load the mobile wallets through CASH. Therefore it is critical for income tax department to track mobile wallet transactions wherein the customer loads the money through CASH. All the mobile wallet transactions wherein the amount is loaded electronically i.e. through credit card/debit card/bank account should be ignored. In other words, if the amount is loaded electronically then any transaction through mobile wallet utilizing this amount should not be reported to the department of income tax. The reason being, it is already reported at the time when customer loads the money.
Besides cash, to avoid money laundering all the transactions utilizing the amount/balance received through transfer between mobile wallets should be tracked. For example, if i load my mobile wallet with Rs 5,000 and transfer this amount to mobile wallet of my friend. In this case, all the transactions of my friend utilizing amount received from my end should be traced and tracked.
It is complex subject with a lot of ifs and buts along with various permutations and combinations. As a taxpayer, I tried to explain in a simplistic manner as i was also planning KYC of my mobile wallet. I am not desisting people to go for mobile wallet KYC but personally, till the time there is clarity on how such transactions are recorded and reported to income tax department, i have put my plan for KYC on HOLD.
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If the IT Department is competent, they would be smart enough to track the trail, and consider it as single transaction.
I hope so :)
I usually note down my daily spends. This dual issue occurred with me also, as when I load my wallet I note it down as expenditure and later when I use the wallet to spend somewhere, I again noted it down as an expenditure. Later, I realized that this is an issue and stopped noting loading wallets as an expenditure as a solution. Government must have also thought of a solution.
I already mentioned a solution in my post but hope there will be more clarity on this issue.
Mr Bhatia , I wanted to know ,our mother filed a tax return once as TDS was deducted , now she is not falling into the bracket of taxable income so still she is required to file a return.
If her gross income is less than 2.5 Lac then she need not file income tax return.
Dear Mr Bhatia ,
Thanks for your reply.
Regards
Prashant