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Private banks have waved charges on Unified Payments Interface (UPI)-based transactions after the Central Board of Direct Taxes (CBDT) asked banks to refund the fee collected from customers and merchants for UPI transactions from January onwards.

“Such charges violate the law. The lenders are asked to stop all such impositions or face penal actions. Any cap on free UPI transactions is a breach of the PSS (payment and settlement systems) and IT Act," CBDT had said on Sunday.

It had also asked banks not to charge customers for other electronic payments powered by RuPay and QR code-based payments using UPI QR and BHIM UPI QR.

The move comes after a few private banks started charging 2.5-5 for person-to-person UPI-based payments beyond 20 transactions per month. ICICI Bank and HDFC Bank started levying charges from 3 May, while Axis Bank and Kotak Mahindra Bank introduced it from 1 June and 1 April, respectively.

Public sector banks, including SBI, did not levy any charge on UPI transactions.

“Banks are… advised to immediately refund the charges collected, if any, on or after 1 January 2020, on transactions carried out using the electronic modes… and not to impose charges on any future transactions carried through the said prescribed modes," said the Central Board of Direct Taxes circular.

“There have been some representations that some banks are imposing and collecting charges on transactions carried out through UPI… Such a practice on part of the banks is a breach of Section 10A of Payments and Settlements Systems Act... Such breach attracts penal provisions under Section 271 DS of the IT Act as well as Section 26 of the PSS Act," the direct tax body said.

Banks had started charging for UPI-based transactions to avoid any misuse of UPI after customers started small-ticket transactions on the system. When UPI came into existence, many fintech players had allowed fund transfers through rewards and other benefits.

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