UPI will now be taxed: The Unified Payment Interface, or UPI, has brought about revolutionary changes in India’s payment ecosystem. While UPI transactions are currently free, the Reserve Bank of India has requested feedback from stakeholders on the possibility of imposing a tiered charge on them.

Discussion Paper by the RBIOn August 17, the Reserve Bank of India (RBI) issued a discussion paper on charges in payment systems in order to structure its policies and streamline the framework of charges for various payment services/activities in India. UPI, IMPS (Immediate Payment Service), NEFT (National Electronic Funds Transfer), RTGS (Real-Time Gross Settlement), and payment instruments such as debit cards, credit cards, and prepaid payment instruments are examples of such methods (PPIs).Based on the feedback received, the RBI intends to revise its policies and streamline the framework of charges for various payment services and activities in the country.

What did the RBI say?
UPI, as a funds transfer system, is similar to IMPS. As a result, it could be argued that UPI charges should be comparable to IMPS charges for fund transfer transactions. A tiered charge based on the different amount bands could be imposed. The RBI requested responses and recommendations from stakeholders by October 3 of this year.

The RBI has not issued any instructions on how to charge for UPI transactions. With effect from January 1, 2020, the government has mandated a zero-cost framework for UPI transactions. This means that UPI charges are nil for both users and merchants. Given that the goal of this discussion paper is to elicit general feedback, a few questions about which approach should be taken have been included. ”

Nirmala Sitharaman, the Union Finance Minister, noted in a Tweet on Tuesday afternoon that the Unified Payments Interface (UPI) recorded more than 6 billion transactions in July, which is the greatest number since the system’s launch in 2016. UPI reported 6.28 billion, according to data from the National Payments Corporation of India (NPCI).

In terms of transaction volume, July had a month-over-month increase of 7.16%. The number of transactions nearly doubled year over year (YoY). The number of transactions rose by 4.76 percent in July while increasing by 75 percent year over year.

The UPI recording 6 billion transactions in July has been welcomed by Prime Minister Narendra Modi as a “amazing success” and he claims it shows how determined the populace is to adopt new technology and create a more sustainable economy.

He made these comments in response to a tweet from Nirmala Sitharaman, the minister of finance, in which she claimed that “UPI records 6 billion transactions in July, highest ever since 2016.”

PM Modi replied to her tweet by saying, “This is a fantastic achievement. It demonstrates the nation of India’s broad willingness to adopt cutting-edge technology and clean up its economy.”

The Prime Minister said, “Digital payments were very useful during the COVID-19 outbreak.”

According to Dilip Asbe, chief executive of the National Payments Corporation of India (NPCI), the organisation responsible for handling retail payments in the nation, the connection of credit cards to the UPI network will soon be implemented. This comes after Reserve Bank of India governor Shaktikanta Das suggested that credit cards might be linked to UPI to speed up payments.

“BoB Cards, SBI Cards, Axis Bank, and Union Bank of India are all being discussed. Asbe stated at an event hosted by the Bank, “We should he able to submit our proposal to the Reserve Bank of India (RBI) in 10 days, and once we receive approval, we should be able to start in two months.

On June 8, Shaktikanta Das announced that the Monetary Committee Meet (MPC) was considering allowing credit card connection on UPI networks. However, it was anticipated that this action would test the UPI users’ access to the Merchant Discount Rate (MDR) benefit. According to experts, one of the main factors behind the expansion of UPI and why retailers choose it over credit and debit cards is the zero-MDR benefits. Banks and payment service providers split the amount paid by the merchant for each card transaction made when using credit cards. In the case of credit cards, this is approximately 2% to 3% of the overall payment.

Asbe noted, “While the existing credit card servicing merchants can continue to receive payments, we might have to take care of the smaller merchants and safeguard them from the MDR.”

When asked about the price disparity between UPI and credit cards and how both will be synchronised, RBI deputy governor T. Rabi responded in June that “getting to the pricing structure is jumping the gun” and that RBI “will see how it will be priced.”

“At the moment, UPI speeds up transactions by connecting customers’ debit cards to their savings and current accounts. Credit card connection on the UPI platform is now being discussed. Shaktikanta Das had stated in June that the Rupay credit cards would initially be connected to the UPI platform. According to a statement from the RBI, this arrangement will give users greater options and ease when using the UPI platform to make payments.

According to a Bloomberg story citing NPCI International Payments CEO Ritesh Shukla, after success in the local market, the National Payments Corporation of India (NPCI) intends to introduce the Unified Payments Interface (UPI) to international markets. It will be a domestic substitute for SWIFT, a cross-border payment system operator with headquarters in Belgium.

“We have substantially replaced cash in India, and now we’re trying to replicate the success in cross-border corridors… According to the paper, “We will establish acceptance for our instruments in the areas where Indians travel regularly.” “Overseas Indians can use our railroads to transfer money inwards directly into their bank accounts. He added that there is room for disruption in the remittances business, where $200 is often sent across borders for $13.

Indians living abroad sent $87 billion home in 2021, the most amount of any country the World Bank has been keeping track of.All residents, including minors, are permitted to freely transmit up to USD 2,50,000 every financial year (April-March) for any permitted current or capital account transaction or a combination of both under the RBI’s Liberalized Remittance Scheme. Additionally, residents may use the foreign exchange facility for limited-time needs up to a total of USD 2,50,000

On February 4, 2004, the Scheme was launched with a USD 25,000 cap. According to the current macroeconomic and microeconomic situations, the LRS limit has been amended gradually. If the sender is a minor, the minor’s legal guardian must countersign the LRS declaration form. Corporations, partnership firms, HUFs, Trusts, etc. are not eligible for the Scheme.According to the World Bank’s most recent report, almost 20% of the $87 billion in remittances that India got in 2021 came from the US, which was also the largest source.

The severity of COVID-19 caseloads and deaths during the second quarter (well above the global average) played a significant role in drawing charitable flows (including for the purchase of oxygen tanks) to the country, according to a World Bank report. “Flows to India (the world’s largest recipient of remittances) are expected to reach $87 billion, a gain of 4.6 per cent,” the report stated.

China, Mexico, the Philippines, and Egypt are listed after India in the report. Remittances to India are expected to increase by 3% to $89.6 billion in 2022, reflecting a decline in the overall stock of migrants due to the high returnee rates from the Arab nations, the report stated.According to the bank, remittances to low- and middle-income countries are expected to have increased by a robust 7.3% to reach $589 billion in 2021. According to projections from the World Bank’s Migration and Development Brief, this return to growth is more solid than prior estimates and follows the durability of flows in 2020, when remittances decreased by only 1.7% despite a severe global recession caused by COVID-19.