CBDT asks banks to refund any fees levied on UPI transactions in 2020

CBDT asks banks to refund any fees levied on UPI transactions in 2020
Private banks like ICICI Bank, Axis Bank, Kotak Mahindra Bank and HDFC Bank recently began charging customers for UPI transactions beyond a prescribed limit

The Central Board of Direct Taxes (CBDT) asked banks to return to customers and merchants any fees levied for creating Unified Payment Interface (UPI) transactions in 2020, adding that such charges violate the law. The lenders were asked to prevent all such impositions or face “penal actions” during a circular issued on Sunday.

“Banks are… advised to right away refund the fees collected, if any, on or after January 1, 2020, on transactions administered using the electronic modes… and to not impose charges on any future transactions carried through the said prescribed modes,” it said. “There are some representations that some banks are imposing and collecting charges on transactions administered through UPI… Such a practice on a part of the banks may be a breach of Section 10A of Payments and Settlements Systems Act… Such breach attracts penal provisions under Section 271 DS of the IT Act also as Section 26 of the PSS Act.”

Private banks like ICICI Bank, Axis Bank, Kotak Mahindra Bank and HDFC Bank recently began charging customers for UPI transactions beyond a prescribed limit. Any cap on free UPI transactions may be a breach of the PSS and IT Act, the board said.

ET reported August 20 that the private banks cited above had introduced UPI fees over the lockdown months. The banks said on their websites that customers could only structure to twenty free UPI peer-to-peer (P2P) transactions, beyond which they might be charged Rs 2.5 to Rs 5 per transaction counting on the ticket size. A banker had told ET that this was done mainly to recoup losses due to increased server load and to stop misuse by customers of free digital payments.

Experts said the directions were welcome as contactless payment was increasing thanks to Covid concerns.

“UPI has been a key enabler of the digitisation of the economy,” said Amit Maheshwari, partner at consultancy firm AKM Global. In July this year, UPI transactions had overtaken those via open-end credit and cash withdrawals.

Processing refunds and not imposing levies within the future on transactions could mean another burden on the banking industry , given the volumes.

“Guidance during this regard from RBI and ministry of finance would be highly appreciated,” said Sandeep Jhunjhunwala, partner, Nangia Andersen LLP.

Waived charges

The Finance Act of 2019 had made it mandatory for each business with a turnover of more that Rs 50 crore within the previous fiscal year to mandatorily provide a mechanism for electronic payment. Further, it had been as long as no bank or system provider should impose any charge on a payer using electronic modes like RuPay powered debit cards, UPI and BHIM UPI and QR code-based UPI payments.

Subsequently, during a circular issued on December 30, 2019, the CBDT clarified that any charge including the merchant discount rate (MDR), shall not be applicable on or after January 1, 2020, on payments made through electronic modes. MDR may be a fee charged by banks from merchants to process digital transactions.

However, citing heavy losses and high cost of infrastructure deployment, banks and National Payments Corporation of India (NPCI) have made several representations to the govt seeking either a reintroduction of MDR or compensation for incurred losses. NPCI estimates this at about Rs 2,000 crore for the payment industry.

In July, the UPI channel clocked an all-time high volume of 1.5 billion transactions. Yes Bank, Axis Bank, depository financial institution of India and Paytm Payments Bank processed the very best number of P2P transactions.

Yes Bank, ICICI Bank, Paytm and Axis Bank facilitated the foremost merchant transactions consistent with industry sources. The UPI model has Payment Service Providers (PSP) within the backend processing transactions for frontend consumer applications like Google Pay, PhonePe and Paytm.

News source

Read more