The Central Board of Direct Taxes (CBDT) on August 30 asked banks to refund any charges they collected after January 1 on transactions made through electronic means.
According to a circular, this comes after the CBDT 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.
"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 DS of the IT Act as well as section 26 of the PSS Act," said Ankur Goyal, under-secretary of the Government of India in the circular.
"Banks are, therefore, 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," the circular added.
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. However, despite the government prohibiting such charges, bankers are saying they have introduced these charges to stop frivolous transactions from putting a load on the system.
According to a report on August 1, the channel operated by the National Payments Corporation of India (NPCI) had clocked in transactions worth Rs 2.61 lakh crore in June, which rose to Rs.2.90 lakh crore in July.
The volume of digital payments has been increasing alongside aggressive campaigning by the NPCI, the Reserve Bank of India, and the government. As such, transaction volumes have improved across retail payment channels after the coronavirus outbreak.