Section 269SU was introduced by Finance Act, 2019 w.e.f. 1.11.2019, wherein businesses with turnover above Rs. 50 crore have to accept payment by electronic mode and from January 2020, CBDT prescribed various modes under rule 119AA for section 269SU.
Now, The Central Board of Direct Taxes (CBDT) said that banks cannot levy any extra charge on transactions made through electronic modes. The new rule is applicable from January 1, 2020. “based on section 10A of the Payment and Settlement Systems Act 2007, any charge including the MDR (Merchant Discount Rate) shall not be applicable on or after 1st January, 2020 on payment made through prescribed electronic modes,” CBDT said in a statement.
The regulator said that it has received several representations that said banks are charging an additional fee on transactions made through UPI. A certain number of transactions are allowed free of charge beyond which every transaction bears a charge.
“Representations have been received 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 Act as well as section 269SU of the IT Act. Such breach attracts penal provisions under section 271 DB of the IT Act as well as section 26 of the PSS Act,” the statement said.
The electronics modes of transactions include:
- Debit card powered by RuPay,
- Unified Payment Interface (UPI),
- Unified Payment Interface Quick Response code (UPI QR code), BHIM UPI QR code.
Further banks have been 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 IT Act and not to impose charges on any future transactions carried through the said prescribed modes.
According to a report by The Times of India, most private banks are charging Rs 2.5 to Rs 5 on person-to-person payments using the Unified Payments Interface (UPI) more than 20 times a month.
The report further said that the use of UPI has been growing by 8 per cent month on month basis during the lockdown. The projections estimate UPI transactions to go up to Rs 160 crore in August as compared to 80 crore in April 2019.
In this regard CBDT has issued a circular to the banks wherein it also mentioned that banks will have to refund the charges collected on payments made via UPI, Rupay debit card, QR Code or as MDR on transactions made on or after January 1, 2020.
Additionally, CBDT has also advised all banks not to impose any charges on any future transactions carried through the aforementioned prescribed electronic modes.
For the unaware, MDR is the rate or processing fee charged to a merchant to assist the transactions made via credit or debit cards. This fee is charged by banks that range anywhere between 1%-3% of the overall amount. MDR was reduced to zero for UPI, Rupay and QR Code by Finance Minister Nirmala Sitharaman in December 2019 and the exemption was applicable from January 1, 2020. However, some banks have been charging a fee on UPI transactions as mentioned in the circular which forced India’s apex body on direct taxation to initiate action.
Besides NPCI’s CEO, Dilip Asbe had also extended his support and emphasised that MDR should be brought back because it funds the acceptance, servicing and acquiring infrastructure for UPI.
Now it will be important to see whether bank will themselves refund the amount or the merchant’s will have to request individually to get refund.
Hence, it is advised to the merchant’s that if such amount is charged and if it is significant one should write a letter requesting refund of such amount and attaching the above circular.