A deep dive into bank charges on UPI payments
The Income tax department has asked banks to refund the charges collected on or after January 1, 2020, on transactions carried out through electronic modes like RuPay cards or BHIM-UPI. Such practice on part of banks is a breach that would attract penal actions, it said.
The Central Board of Direct Taxes (CBDT), in a circular on ‘imposition of charge on the prescribed electronic modes under section 269SU of I-T Act’, also advised banks not to impose any charges on any future transactions carried out through these modes.
The move is to encourage and boost digital payments in the country. As per data by National Payments Corporation of India (NPCI), UPI-based payments grew with 1.49 billion transactions worth ₹2,90,537 crore in July 2020 amid pandemic.
Prescribed modes & provisions
The CBDT had said in December 2019 that any charge shall not be applicable on or after January 1, 2020, on payment made through prescribed electronic modes. What are these prescribed modes? Debit card powered by RuPay, Unified Payments Interface (UPI) (BHIM-UPI); and Unified Payments Interface Quick Response Code (UPI QR Code).
Furthermore, the government last year had introduced a provision that mandated every business with ₹50 lakh or more annual turnover to provide customers with the choice of making payment via prescribed electronic means. It is said that the rule was put in place for transparency as customers often are asked to make cash payments instead of digital means or cheque.
Banks course of action
Large private banks like HDFC, Axis, Kotak Mahindra, ICICI Bank have been charging (ranging from ₹2.5–5) on transfers using the Unified Payments Interface (UPI) beyond 20 transactions a month. The rates differ for transactions of up to and above ₹1,000 with additional goods and services tax (GST).
A report published by Indian Institute of Technology (IIT) Bombay’s Ashish Das stated that banks interpreted that while the ‘payments’ are free as said by the government, person-to-person transfers can be charged.
Banks also claimed that the decision to limit free transactions to 20 was taken at a meeting with NPCI in February. However, the NPCI did not explicitly indicate in the said minutes that banks charge beyond. Therefore, the decision to charge for UPI transactions is that of banks, Das’ report added.
The fintech digital payment apps account for the bulk of UPI transactions. Google Pay asks users to transfer Re. 1 whenever a new contact joins the platform. Amazon Pay, Paytm and PhonePe incentivize transfers through rewards or cash backs to transfer small amounts. Therefore, banks argue that there is a ‘misuse’ by account holders sending money back and forth which increases the load on the system.
Looks like banks will have to start the process of refunding the extra charges levied on such transactions to save themselves from any penal actions. This will add additional burden to the already stressed banking sector hit by the ongoing crisis.
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