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CBDT Directs Reversal of UPI Payment Charges a Prescribed Electronic Mode under section 269SU

cbdt-directs-reversal-of-upi-payment-charges-a-prescribed-electronic-mode-under-section-269su

CBDT Directs Reversal of UPI Payment Charges ​a Prescribed Electronic Mode under section 269SU: CBDT has issued Circular No. 16/2020 on 30th August, 2020 advising banks to immediately refund the charges collected, if any, on or after 1st January, 2020 on transactions carried out using the prescribed electronic modes prescribed under section 269SU of the Income-tax Act,1961. Banks are also advised not to impose any charges on any future transactions carried through these prescribed modes.

Section 26SU was introduced to promote digital payments in India and to reduce the cash transactions. In order to achieve the objectives amendment in Section 10A of the Payment and Settlement Systems (PSS) Act, 2007  was brought in to provide that no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving payment by using the electronic modes of payment prescribed under section 269SU of the Income Tax Act, 1961.


The followings are the prescribed electronics modes under section 269SU:

1) Debit card powered by RuPay, 

2) Unified Payment Interface (UPI), 

3) Unified Payment Interface Quick Response code (UPI QR code), BHIM UPI QR code.


Despite this, certain private sector banks started charging even UPI payments. The charges increase with an increase in the amount of payment, though certain transactions are made free in a month. For example, Axis Bank has made 20 monthly transactions free and starts charging thereafter which ranges from Rs. 2.50 to Rs. 5 (excluding GST) per transaction based on the transaction amount.


It was reported that the decision to charge for UPI transactions is that of banks and not of the NPCI (National Payments Corporation of India), which manages the BHIM-UPI interface.


During COVID times, there has been a significant rise in digital payments including the use of UPI and has become a necessity. According to data released by NPCI, UPI-based payments clocked 1.49 billion transactions in July.


The CBDT Circular states that certain banks are collecting charges for UPI transactions. A certain number of transactions are free and beyond the limit, bank charges for every UPI payment. Such practice on parts 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 271DB of the IT Act as well as section 26 of the PSS Act.


In furtherance to the declared policy objective of the Government to encourage digital economy and move towards a less-cash economy, a new provision namely Section 269SU was inserted in the Income Tax Act 1961, vide the Finance (No. 2) Act 2019, which provides that every person having a business turnover of more than Rs 50 Crore shall mandatorily provide facilities for accepting payments through prescribed electronic modes.


Section 269SU came into effect from 1st November 2019.


To ensure compliance with the provisions of section 269SU, the law has provided a penalty for failing to comply with the provisions of section 269SU.


For this purpose, section 271DB is introduced by the Finance (No. 2) Act, 2019. The section provides for a penalty of Rs. 5,000 for every day during which such failure continues.


CBDT notified the prescribed modes of payments under section 269SU by a Notification No. 105/2019 dated 30.12.2019 and amended the Income Tax Rules, 1962.


A new Rule 119AA was inserted in the Income Tax Rules, 1962 to mandatorily provide for the following electronic modes of payments in addition to the facility for other electronic modes of payment, if any, being provided, namely-

Debit Card powered by RuPay;

Unified Payments Interface (UPI) (BHIM-UPI); and

Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)


The new Rule 119AA comes into effect from 01.01.2020.


However, CBDT allowed the specified persons to install and operationalise the digital payment facilities on or before 31st January, 2020 by Circular No. 32/2019 dated 30.12.2019.


The CBDT notified 'other electronic mode of payments' by a Notification No. 08/2020 dated 29.01.2020 to provide for the followings as an acceptable electronic mode of payments-

(a) Credit Card;

(b) Debit Card;

(c) Net Banking;

(d) IMPS (Immediate Payment Service);

(e) UPI (Unified Payment Interface);

(f) RTGS (Real Time Gross Settlement);

(g) NEFT (National Electronic Funds Transfer), and

(h) BHIM (Bharat Interface for Money) Aadhar Pay”;


For this purpose, a new Rule 6ABBA with the heading 'Other electronic modes' is introduced in the Income Tax Rules, 1962. This rule has been given a retrospective effect and will come into force from 01-09-2019.


Since section 269SU did not provide an exemption for any entities rather was made applicable to all, it was unnecessarily increasing the cost of compliances for B2B entities. Those entities had to compulsorily comply with the provisions of section 269SU without any purposeful use since violation of section 269SU attracts a penalty of Rs 5,000 for each day of default. Many businesses were forced to install such payment facilities, even though such facilities were never supposed to be used for such businesses, considering the nature of business or customer base.


In order to provide relaxation, CBDT vide Circular No. 12/2020 dated 20.05.2020, it was clarified that provisions of section 269SU of the Act shall not be applicable to a specified person having only B2B transactions (i.e. no transaction with retail customer/consumer) if at least 95% of the aggregate of all amounts received during the previous year, including the amount received for sales, turnover or gross receipts, are by any mode other than cash.


The objective of introducing such a legal provision is to achieve the government's objective of making the economy a less-cash and a digital economy. The undue imposition of charges on UPI payments including transfers is not only unethical but also a big blow to the government objectives. It is indeed a good factor that the regulator has acted promptly and directed the banks to reverse the charges. Though the CBDT’s action is a most welcome step, however, there is no such action/direction so far from the banking regulator in this context.


Full Text of CBDT’s Circular No. 16/2020 dated 30-08-2020


Circular No. 16/2020


F.No.370142/35/2019-TPL-Pt 

Government of India 

Ministry of Finance 

Department of Revenue 

Central Board of Direct Taxes 


Dated: 30th August, 2020


Subject: Imposition of charge on the prescribed electronic modes under section 269SU of the Income-tax Act, 1961 — reg. 


In furtherance to the declared policy objective of the Government to encourage digital transactions and move towards a less-cash economy, the Finance (No. 2) Act 2019 inserted a new provision namely section 269SU in the Income-tax Act, 1961 ("the IT Act"), which provides that every person having a business turnover of more than Rs. 50 crores during the immediately preceding previous year shall mandatorily provide facilities for accepting payments through prescribed electronic modes. Further, a new provision namely section 10A was also inserted in the Payment and Settlement Systems Act 2007 ("the PSS Act"), which provides that no Bank or system provider shall impose any charge on a payer making payment, or a beneficiary receiving payment, through electronic modes prescribed under section 269SU of their IT Act. Subsequently vide notification no 105/2019 dated 30.12.2019 (i) Debit Card powered by RuPay; (ii) Unified Payments Interface (UPI) (SHIM-UPI); and (iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI DR Code) were notified as prescribed electronic modes under section 269 SU of the IT Act. 


2. A circular no. 32/2019 dated 30.12.2019 was issued by the Board to clarify that based on section 10A of the PSS Act, any charge including the MDR (Merchant Discount Rate) shall not be applicable on or after 01st January, 2020 on payment made through prescribed electronic modes. However, 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.


3. Banks are, therefore, advised to immediately refund the charges collected, if any, on or after 1st 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. 


(Ankur Goyal)

Under Secretary to the Govt. of India


Download Copy of Circular No. 16/2020 dated 30.08.2020 on Reversal of UPI Payment Charges in pdf format.


Further Readings on Section 269SU:

Section 269SU - Online Compliance Report on e-filing Account

CBDT Sets Last Date for Prescribed Electronic Modes of Payment Section 269SU

CBDT Notified Prescribed Modes of Payment for Section 269SU

Is Cash or Cheque Payment or Receipt Banned-Section 269SU



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