In a circular, the apex direct tax policy making body said it has received word that some banks are imposing charges on unified payment interface (UPI) transactions
The Central Board of Direct Taxes (CBDT) on Sunday warned banks of penal action if they levy any transaction charge on electronic payment modes that the government has specified for encouraging a less-cash economy.
In a circular, the apex direct tax policy making body said it has received word that some banks are imposing charges on unified payment interface (UPI) transactions. Some banks allow a specified number of transactions free of charge and they levy a charge beyond that, which CBDT said was a breach of the law.
CBDT said that such practice by banks was a breach of the Payment and Settlement Systems (PSS) Act as well as the Income Tax Act and that it would attract penal provisions under both the statutes. The Income Tax Act says that any person who is required to provide the facility of electronic payments through specified modes and fails to do so, so is liable to a penalty of ₹5,000 a day during the period of such failure.
Last year, the government amended the Income Tax Act to require businesses with more than ₹50 crore sales to compulsorily offer electronic payment methods. It also amended the Payment and Settlement Systems Act to ban levy of any charge on a person making or receiving payment through electronic modes specified under the Income Tax Act. Debit card payments powered by RuPay, Unified Payments Interface (UPI) and UPI Quick Response Code are the electronic modes that need to be compulsorily offered by businesses for accepting payment through electronic payment mode.
“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," CBDT circular said.
Encouraging electronic payment mode is part of the government’s efforts to formalise the economy and to track major financial transactions that will help in ensuring tax compliance.
Processing of refund of charges collecting from January till date and non-imposition in future on transactions done through specified electronic modes could mean an added burden on the banking system handling transactions via RuPay or UPI right from initiation to settlement of such payments, according to Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, a consultancy. “Guidance in this regard from RBI and ministry of finance would be highly appreciated," said Jhunjhunwala.
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