I-T Dept asks banks to refund any fees levied on UPI transactions from January 2020

Our Bureau New Delhi | Updated on August 30, 2020

Earlier, the government has mandated banks not to levy any charges for accepting payment through electronic modes including Merchant Discount Rate for businesses with a turnover of over ₹50 crore

Income Tax Department on Sunday came hard on banks for collecting charges from specified businesses providing payment facility through RuPay debit card or BHIM UPI. Banks have been asked to refund charges and also cautioned that such collection would attract a penalty.

Here specified businesses mean those who are having turnover of ₹50 crore or more. Based on the budget provision, these businesses are mandatorily required to provide the facilities for accepting payment through the prescribed electronic modes without any charge including MDR (Merchant Discount Rate) with effect from January 1, 2020. A December 30 notification from the Income Tax Department listed debit cards powered by RuPay, the Unified Payments Interface (UPI) (BHIM-UPI) and the Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code) as prescribed modes of payment for undertaking digital transactions without any MDR.


Later, the Income Tax Department received representations from various businesses that some banks are imposing and collecting charges on transactions carried out through UPI. A certain number of transactions are allowed free of charge beyond which every transaction bears a cost. However, tax department says, “Such practice on the part of banks is a breach of section 10A of the PSS (Payment and Settlement System) Act as well as section 269SU of the IT (Income Tax Act).” Such a breach attracts penalty which could go up to ₹ 1 crore.


“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 prescribed under section 269SU of the IT Act and not to impose charges on any future transactions carried through the said prescribed modes,” the tax department said in a circular dated August 30.

A great step towards achieving cashless economy

Commenting on the latest circular, Sandeep Jhunjhunwala, Partner at Nangia Andersen LLP said that such move by the CBDT (Central Board of Direct Taxes) drawing the attention of banking system of the nation is a great step towards achieving cashless economy, especially encouraging contactless payment mechanism in the times of Covid-19 pandemic prowling around.

“Processing of refund of charges collecting from January 2020 till date and non-imposition in future on transactions carried out using electronic modes prescribed under Section 269SU of the Income-tax Act could mean an added burden on the banking system handling transactions via RuPay or UPI right from initiation to settlement of such payments," he said while adding that guidance in this regard from RBI and Ministry of Finance would be highly appreciated.

It may be noted that if businesses with a turnover of ₹50 crore or more failing to operationalise payment system through RuPay debit card or BHIM UPI, then they are required to pay a penalty of penalty at the rate of ₹5,000 a day with effect from February 1. Though businesses were asked to start the system from January 1, but the one-month grace period was given to install and operationalise the system.

Published on August 30, 2020

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