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All about bank charges on UPI transactions

Banks now appear to be cashing in on the digital payments wave

August 31, 2020 / 11:45 AM IST

Faced with a possible squeeze in margins after the lifting of the moratorium, banks have slowly and gradually started imposing charges on Unified Payments Interface (UPI) transactions. In some cases, charges have even been increased. In July 2020, UPI transactions worth Rs 2.9 lakh crore were recorded, as against Rs 1.46 lakh crore in the same period last year. Banks now appear to be cashing in on the digital payments wave by charging fees for the UPI transactions.

Bank charges

For person-to-person transactions using UPI or payment apps (Google Pay, Paytm, Amazon Pay, BHIM, etc.) numbering more than 20 a month HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank charge a fee.

Axis Bank, ICICI Bank and Kotak Mahindra Bank charge Rs 2.50 for amounts of up to Rs 1,000 and Rs 5 for transfers above Rs 1,000 on person-to-person UPI payments beyond 20 transactions a month.

Similarly, HDFC Bank charges Rs 2.75 and Rs 5 for the above thresholds.

Close

Additionally, an 18 per cent goods and services tax (GST) is applied on these bank charges. The bank charges were applicable in the past as well, but it was for UPI transactions beyond 50. Now, the number of transactions with zero charges has been reduced from 50 to 20 by most banks. To be sure, the charges are imposed whenever you transfer funds to someone else.

Why are bank charges levied for UPI transactions?

Ashish Das of the Indian Institute of Technology (IIT), Bombay, in his recent report, ‘Deviating from the Bharat Interface for Money (BHIM) – UPI Law’ says, “National Payments Corporation of India (NPCI) does not explicitly indicate that the banks can charge beyond 20 person-to-person transactions in a month.” Banks have taken a decision to charge for UPI transactions after the free transaction limit set by them without consulting with the National Payments Corporation of India (NPCI).

Though the government has prohibited such charges, bankers say they have introduced the UPI charges to stop frivolous transactions from putting a load on the system. For instance, Google Pay asks users to transfer one rupee whenever a new user from your contact list registers on Google Pay. Amazon Pay, Paytm and PhonePe too encourage users with rewards or cash back vouchers to transfer small amounts. These fintech digital payment apps account for the bulk of UPI transactions.

Central Board of Direct Taxes asks banks to refund UPI charges

“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 (UPI) prescribed under section 269SU of the Income Tax Act and not to impose charges on any future transactions carried through the said prescribed modes,” said Ankur Goyal, under-secretary of the Government of India in the circular issued on August 30 by Central Board of Direct Taxes.

UPI transactions that will continue with no charges

At present, not all the UPI transactions are being charged for by banks. For instance, paying to merchants at stores, online shopping and utility bill payments will continue to have zero charges.
Hiral Thanawala
first published: Aug 31, 2020 11:02 am

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