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

Mumbai: The Central Board of Direct Taxes (CBDT) has asked banks to immediately refund its customers and merchants any fees levied for making Unified Payment Interface (UPI) transactions in 2020, reiterating such charges are in violation of existing laws.

The lenders have also been asked to stop all such impositions or face “penal actions” in a circular issued on Sunday.

Private banks such as ICICI Bank, Axis Bank, Kotak Mahindra Bank and HDFC Bank have recently started charging customers on UPI transactions beyond a prescribed limit for free transactions.

“…representations have been received that some banks are imposing and collecting charges on transactions carried out through UPI,” the circular issued by the CBDT on August 30 stated, noting that any practice by banks to introduce caps on free UPI transactions is a breach of both the Payment and Settlement Systems Act as well as the IT Act.

“Such breach attracts penal provisions under section 271 DS of the IT Act as well as section 26 of the PSS Act,” according to the circular.” Banks are, therefore, advised to immediately refund the charges collected, if any, on or after 1″ January, 2020 on transactions carried out using the electronic modes…and not to impose charges on any future transactions carried through the said prescribed modes.”

ET had reported in their August 20 edition that these private banks named above had introduced UPI fees over the lockdown months.

As per the disclosures made by the cited banks on their respective websites, customers can only make up to 20 free UPI peer to peer transactions beyond which they are charged between Rs 2.5 and Rs 5 per transaction depending on the ticket size.

A banker had told ET that this was done mainly to recoup some of the losses owing to increased server load, and to prevent misuse by customers of free digital payments.

To be sure, the government had announced during its 2019 budget that all UPI and RuPay transactions would no longer incur any Merchant Discount Rates (MDR) – which is a fee charged by banks from merchants to process digital transactions – to encourage more small merchants to adopt digital payments. The law mandating this was introduced through statutory amendments on December 30, 2019.

However, citing heavy losses and high cost of infrastructure deployment, the banks and NPCI have made several representations to the government seeking either a reintroduction of MDR or apt compensation on incurred losses. NPCI estimates this at about Rs 2000 crore for the payment industry.

In July the UPI channel clocked an all-time high volume of 1.5 billion transactions where Yes Bank, Axis Bank, State Bank of India and Paytm Payments Bank processed the highest number of P2P transactions, whereas Yes Bank, ICICI Bank, Paytm and Axis Bank, facilitated most merchant transactions according to industry sources.

The UPI model has regulated banks called Payment Service Providers (PSP) banks in the backend processing transactions for front end consumer applications such as Google Pay, PhonePe and Paytm.