IT Act 2000 and Online Transactions in India

Importance of online transaction

Harsh Mittal

8/7/20235 min read


Online transactions are a type of payment where funds are transferred electronically via the Internet. A password is required to access the secure online transaction process (OLTP). A form of database system called online transaction processing (OLTP) is utilized in transaction-oriented applications, like many operational systems. The term "online" denotes the expectation that such systems would respond to user requests and conduct transactions immediately.

In other words, making payments for goods or services online without using cash or checks is referred to as an electronic payment mechanism. It is also known as an electronic payment system or an online transaction.

Advantages of Online Payment

1. Globalization – A company can attract more clients from abroad and domestically, perhaps boosting sales through online transactions as a person can receive or send money to one another without any issues.

2. Convenient - Any e-commerce business gateway accepts payments from customers at any time and from anywhere. It only requires a device with internet access.

3. Secure - Best-in-class security and anti-fraud solutions are provided by payment providers and payment gateways to guarantee the dependability of your transactions; this makes online transactions secure and safe for the users.

4. Efficient and Effective Transactions – All online transactions do not require much time. With just one tab, the transaction can get completed within seconds.

Drawbacks of Online Payment

1. E-Commerce Frauds - One of the main issues when using online payment methods is e-commerce fraud. Nevertheless, following security guidelines should not be an issue; there is a chance that a data leak could result in identity theft if merchants choose less secure payment solutions.

2. Availability of Internet Access – Another Drawback of online payment is that it depends on the Internet. In some places, like rural areas, the Internet is not available, and because of this, a person will not be able to do online transactions.

Types of Online Transactions

1. NEFT - A well-liked payment technique that makes it simple to move money from one person to another is called NEFT, or National Electronic Funds move. Through NEFT, people can electronically transfer money from any bank to the account of a person in that Bank or in any other bank. The NEFT mechanism cannot be used for real-time fund transfers; instead, the transaction is settled in several half-hourly batches. There is no set minimum or limit for NEFT transactions. Banks may, however, set their upper restrictions. For instance, HDFC Bank has an NEFT transfer cap of Rs. 25 lakhs per client ID daily.

2. RGFT - Another kind of online payment known as Real-Time Gross Settlement, or RTGS, allows money to be credited in real-time to the recipient's bank account. This type of electronic payment is typically used for high-value transactions that need to clear immediately. There is no maximum amount that can be transferred through this method; the minimum is Rs. 2 lacks.

3. IMPS - The National Payment Corporation of India (NPCI) manages the quick interbank transfer system called IMPS or Immediate Mobile Payment Services. With IMPS, you may send smaller amounts—up to Rs. 2 lakh—immediately, even if all you have is the recipient's Bank account-linked phone number. The best elements of both NEFT and RTGS are combined in the fund transfer method known as IMPS.

4. UPI - The Unified Payments Interface is a system that integrates various bank accounts, smooth fund routing, and merchant payments into a single smartphone app (of any participating bank). Additionally, it supports "Peer to Peer" collection requests that may be planned and paid for acc. to need and convenience. For the mobile platforms of Android, Windows, and iOS, each Bank has its own UPI App.

Information Technology Act, 2000

The IT Act 2000 was notified on October 17, 2000. It was enacted on June 9, 2000.

Objectives of the Information Technology Act, 2000

1. The Information Technology Act of 2000 gives transactions made via electronic data interchange, other electronic means of communication, or electronic commerce legal status.

2. To make it easier for documents to be filed electronically with government bodies, alternatives to paper-based communication and information storage must also be used.

Further, this act amended the IEA 1872, the Bankers’ Books Evidence Act 1891, the RBI Act 1934, and the Indian Penal Code 1860.

Features of the Information Technology Act 2000

1. It provided legal recognition for digital signatures.

2. Digital signatures and electronic records both have security mechanisms in place. The process for selecting adjudicating officers to conduct inquiries under the Act has been finalized.

3. This law also applies to offenses committed outside of India.

4. This act facilitated electronic storage of the date.


In conclusion, the Information Technology Act (IT Act) has played a significant role in regulating online transactions in India. Over the years, the Act has evolved to address the challenges and complexities in the digital landscape. With the increasing growth of e-commerce and online transactions, the IT Act has provided a legal framework to protect the interests of both businesses and consumers.

One of the critical contributions of the IT Act is its recognition of electronic documents and digital signatures. This has facilitated the growth of electronic transactions, making it easier and more convenient for individuals and businesses to engage in online commerce. The Act has established the legal validity of electronic contracts, ensuring that they are enforceable in a court of law. This has given confidence to businesses and consumers alike, fostering the growth of the digital economy.

Moreover, the IT Act includes provisions to address issues such as cybercrime and data protection. It criminalizes various cyber offenses such as hacking, identity theft, and wrongful access to computer systems. These provisions act as a deterrent against cybercriminals and provide legal recourse for victims. The Act also contains provisions for protecting personal data and privacy, crucial in an era where data breaches and privacy violations are increasingly common.

Additionally, the IT Act has established regulatory bodies, for example, CERT-In, to handle cybersecurity incidents and promote a safe online environment. These bodies work in collaboration with law enforcement agencies to investigate and prosecute cybercrimes effectively. They also play an important role in raising awareness about cybersecurity among businesses and individuals, contributing to the overall resilience of India's digital infrastructure.

However, it is worth noting that as technology continues to evolve, new challenges and threats may emerge that require further updates and amendments to the IT Act. As the digital landscape becomes more complex, there is a need for continuous vigilance and adaptability in the legal framework to ensure effective regulation of online transactions and the protection of all stakeholders involved.

In conclusion, the IT Act has been instrumental in shaping the legal landscape for online transactions in India. It has provided a robust framework to facilitate electronic commerce, protect against cyber threats, and safeguard the rights and interests of various citizens and businesses. However, ongoing efforts are necessary to keep pace with the ever-changing digital landscape and address emerging challenges on time.

(Edited & Posted By Lawful Bytes Team)

Harsh Mittal

B.Com. L.L.B. Sem 2