Private banks such as 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 making Unified Payment Interface (UPI) transactions in 2020, adding that such charges violate the law. The lenders were asked to stop all such impositions or face “penal actions” in a circular issued on Sunday.
“Banks are… advised to immediately refund the charges collected, if any, on or after January 1, 2020, on transactions carried out using the electronic modes… and not to impose charges on any future transactions carried through the said prescribed modes,” it said. “There have been some representations that some banks are imposing and collecting charges on transactions carried out through UPI… Such a practice on part of the banks is a breach of Section 10A of Payments and Settlements Systems Act... Such breach attracts penal provisions under Section 271 DS of the IT Act as well as Section 26 of the PSS Act.”
Private banks such as 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 is 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 make up to 20 free UPI peer-to-peer (P2P) transactions, beyond which they would be charged Rs 2.5 to Rs 5 per transaction depending on the ticket size. A banker had told ET that this was done mainly to recoup losses owing to increased server load and to prevent misuse by customers of free digital payments.
Experts said the directions were welcome as contactless payment was increasing due 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 debit card and cash withdrawals.
Processing refunds and not imposing levies in the future on transactions could mean an added burden on the banking system, given the volumes.
“Guidance in 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 every business with a turnover of more that Rs 50 crore in the previous financial year to mandatorily provide a mechanism for electronic payment. Further, it was provided that no bank or system provider should impose any charge on a payer using electronic modes such as RuPay powered debit cards, UPI and BHIM UPI and QR code-based UPI payments.
Subsequently, in 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 is 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 government 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, State Bank of India and Paytm Payments Bank processed the highest number of P2P transactions.
Yes Bank, ICICI Bank, Paytm and Axis Bank facilitated the most merchant transactions according to industry sources. The UPI model has Payment Service Providers (PSP) in the backend processing transactions for frontend consumer applications such as Google Pay, PhonePe and Paytm.
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