Will you levy air usage charge on flying cars?

The paanwallas and small vegetable vendors in the interiors are all completely hands-on with UPI. Representation pic/iStock

India's Unified Payments Interface (UPI) has transformed the way individuals and businesses make payments. Under the proposed framework, Person-to-Person (P2P) transactions will remain free irrespective of the amount involved. Merchant payments up to Rs 2000 will also continue to be free. Merchant Discount Rate (MDR) will apply only to specified Person-to-Merchant (P2M) transactions exceeding Rs 2000, with the objective of creating a sustainable revenue model for the UPI ecosystem.

The transformation

India has 49 per cent market share of UPI transactions, Brazil being the next. The Indian digital landscape has transformed the otherwise cash currency exchange model into UPI-based payments. This has been free for customers all these years.

The UPIs have been making their revenues by securing fixed commissions or interchange fees from merchants and cashback, etc. Further, the UPIs have also been making their amounts from the floats lying with them between customer pay-in and merchant pay-out periods.

The success of this system has been manifested in rural youth inclusion in the digital payments mode. The paanwallas and small vegetable vendors in the interiors are all completely hands-on with UPI. The processes have a significant safety net around them, too, thanks to the robust regulatory and structural initiatives by the Government of India. Bringing in any reforms and adding charges for specified transaction amounts in excess of R2000 between person to merchants is discouraging in today's new-age digital India from October 15, 2026.

The challenges

£ Every time a payment is made, the person will need to check if they are liable for any charge
£ Users may resort to splitting transactions, which is not good from a fiscal reporting point of view.

Arguments in favour

£ This is applicable to large merchants and e-commerce platforms only.
£ This is being done to enhance the UPI infrastructure and players within.
Just like physical infrastructure is paid for from our taxes, such as the Goods and Services Tax (GST), these digital infrastructure costs can also be budgeted out from the final revenues, we think.

The questions

£ Are we going to say tomorrow there will be an "anti-Mythos charge" that will be made liable to citizens for developing and enhancing such infrastructure?
£ The R5 charge on railways, telecom, insurance premiums, etc., above R2000 is complete back-door taxation.
£ Japan has reduced their GST rates on certain essential items to one per cent, whereas India continues to charge a high GST of 5 per cent on essential items of food, dairy, personal care. Honourable Finance Minister N Sitharaman madam, why not reduce these rates to one per cent when you are bringing back-door charges like MDR?

Fly buy

In future, when we have flying cars, will there be a tax factored in by way of GST, or will the government again come out with an air usage charge based on signals crossed?
Every time there is successful implementation of an innovation, there is a back-door tax (though not directly on individual consumers in this case) on the same.

Concerns and challenges

£ May encourage splitting of transactions to remain below the R2000 threshold.
£ Possibility of payments being routed through personal UPI IDs instead of business accounts.
£ Risk of indirect cost burden ultimately being passed on to consumers.
£ Possibility of increased preference for cash transactions in certain sectors.
£ Continued consumer confusion regarding MDR and transaction charges may require further awareness initiatives.

The conclusion

The government's intent to ensure the financial sustainability of India's rapidly growing UPI ecosystem is commendable. However, while designing such a framework, it is equally important to ensure that behavioural incentives do not weaken transparency and digital records. A balanced approach that preserves the principle of ‘One Payment, One Digital Record' while ensuring sustainability of the payment ecosystem will help strengthen public confidence in UPI and further India's digital economy goals.

CA Dr Mitil Chokshi is senior partner, Chokshi & Chokshi