IT dept asks banks to refund charges collected on RuPay, UPI transactions

New Delhi, Aug 31: The Income Tax department 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.

The Central Board of Direct Taxes (CBDT), in a circular on 'imposition of a 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.

To encourage digital transactions and move towards a less-cash economy, the government inserted a new provision, Section 269SU, in the Finance Act, 2019.

The Act requires a person carrying on business and having sales/turnover/gross receipts from the business of more than Rs 50 crore in the immediately preceding previous year to mandatorily provide facilities for accepting payments through prescribed electronic modes.

Subsequently, in December 2019, debit card powered by RuPay; Unified Payments Interface (UPI) (BHIM-UPI); and Unified Payments Interface Quick Response Code (UPI QR Code) were notified as prescribed electronic modes.

"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 prescribed under section 269SU of the Income-tax Act,1961 and not to impose charges on any future transactions carried through the said prescribed modes," the CBDT circular said.

The apex body on direct taxes said that it had in December 2019 clarified that any charge, including the Merchant Discount Rate (MDR) shall not be applicable on or after January 1, 2020, on payment made through prescribed electronic modes.

However, it has received representations 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 charge.

"Such practice on part of banks is a breach of section 10A of the PSS (Payment and Settlement Systems) Act as well as Section 269SU of the Income Tax Act. Such breach attracts penal provisions...," the CBDT said.

Nangia Andersen LLP Partner Sandeep Jhunjhunwala said, "Processing of refund of charges collected from January 2020 till date and non-imposition on future transactions carried out using electronic modes prescribed under Section 269SU of the I-T Act could mean an added burden on the banking system handling transactions via RuPay or UPI right from initiation to settlement of such payments. Guidance in this regard from the RBI and the Ministry of Finance would be highly appreciated".