The Unified Payments Interface (UPI) has revolutionized the way we transact digitally, becoming a major driver of India’s journey toward a cashless economy. Recently, the National Payments Corporation of India (NPCI) announced a major update: the increase in UPI transaction limits for specific categories, including tax payments, healthcare, education, and more. Effective from September 16, 2024, the new UPI transaction limit of ₹5 lakh per transaction is a significant leap from the previous limit of ₹1 lakh. This increase aims to provide greater flexibility and convenience to users, making high-value transactions easier and more accessible.
In this blog, we will dive deep into the details of this update, how it impacts consumers, businesses, and the broader Indian economy, and what it means for the future of digital payments in India. We’ll also explore the key features and requirements set forth by NPCI and the Reserve Bank of India (RBI) to ensure the successful implementation of this new limit.
A Closer Look at the Increased UPI Transaction Limit
The National Payments Corporation of India (NPCI) has increased the limit for UPI transactions to ₹5 lakh for certain types of payments. This change is aimed at facilitating larger, high-value transactions and reflects the growing popularity of UPI in India. The standard UPI transaction limit of ₹1 lakh was already sufficient for most day-to-day transactions, but it limited users who wanted to use the system for more substantial financial activities.
The increased limit of ₹5 lakh will apply to various categories of transactions, including:
- Tax Payments: Users can now pay up to ₹5 lakh per transaction for tax obligations, promoting ease of tax payments for individuals and businesses alike.
- Healthcare Payments: Verified hospitals and medical institutions can now accept UPI payments up to ₹5 lakh, which is especially useful for covering large medical bills.
- Educational Fees: Educational institutions often have high-ticket transactions, and this new limit is set to make payments easier and more efficient.
- Financial Investments: Payments for Initial Public Offerings (IPOs), government securities (G-Secs), and other financial instruments will be covered under this increased limit.
This change reflects the NPCI’s commitment to evolving the UPI platform to meet the growing demands of users and provide a comprehensive digital payment solution.
The Rationale Behind Increasing the UPI Transaction Limit
The Reserve Bank of India (RBI), in its 50th Monetary Policy Committee (MPC) meeting, also emphasized the need to support higher-value transactions through UPI. RBI Governor Shaktikanta Das pointed out that the increased limit would help in “further easing tax payments by consumers through UPI.” Previously, many high-value payments were confined to traditional banking methods like net banking or NEFT due to transaction limits on UPI.
With the introduction of the ₹5 lakh limit, UPI will now cater to a wider range of financial activities, allowing individuals and businesses to transact efficiently and conveniently. In addition, the RBI has proposed a feature called “Delegated Payments” that allows a primary user to authorize another person to make UPI transactions up to a specified limit from the primary user’s bank account. This innovative feature will be particularly useful for families, where parents can grant their children limited access to their accounts for daily expenses.
Conditions for the Enhanced UPI Transaction Limit
To enable this enhancement, specific conditions must be met. According to the NPCI circular:
- Merchant Verification: To use the enhanced limit, merchants must be verified. Verified merchants classified under ‘MCC-9311’ are responsible for handling tax payments. Acquiring entities must ensure that these merchants are thoroughly vetted and added to the “Verified Merchant” list.
- Compliance by Banks and PSPs: Banks, payment service providers (PSPs), and UPI apps are required to update the per-transaction limit for categories of verified merchants as specified in the NPCI guidelines. Compliance was expected by September 15, 2024, to ensure a smooth transition to the new limits.
- Updating Systems: All stakeholders, including banks and payment service providers, are urged to ensure that their systems are updated to accommodate the new transaction limits.
This move is expected to streamline high-value transactions and provide more options for users engaging in substantial financial activities.
Impact on Tax Payments
The increase in UPI transaction limits will greatly benefit tax payments, particularly for high-net-worth individuals and businesses handling large tax obligations. With UPI’s secure, instant transaction features, taxpayers can now make high-value payments more efficiently and with greater convenience.
Benefits for Taxpayers
- Convenience: Taxpayers can now settle larger tax liabilities with a single transaction, reducing the need for multiple payments.
- Time-Saving: The process of making tax payments becomes quicker and more efficient, allowing taxpayers to focus on other important activities.
- Reduced Paperwork: Digital payments eliminate the need for physical paperwork, such as cheques or demand drafts, streamlining the tax payment process.
- Enhanced Security: UPI transactions are generally secure, protecting taxpayers from fraud and data breaches.
Potential Economic Implications
- Boost to Digital Payments: By facilitating larger tax payments through UPI, the government is promoting digital transactions, which, in turn, reduces dependency on cash.
- Improved Tax Compliance: The ease of making tax payments through UPI can encourage better tax compliance among taxpayers.
- Strengthened Financial System: Increased digital transactions contribute to a more robust and transparent financial ecosystem.
- Government Revenue: Efficient payment methods like UPI can improve government revenue by ensuring timely tax collection.
Delegated Payments Feature: Expanding UPI’s Reach
One of the most interesting additions to the UPI ecosystem is the proposed “Delegated Payments” feature. This allows a primary user to permit another individual to make UPI transactions up to a specific limit from the primary user’s bank account without needing a separate bank account linked to UPI. For instance, parents could allow their children to use their accounts for daily expenses, making digital payments accessible even to those without a personal bank account or smartphone.
This feature is expected to enhance the convenience and inclusivity of digital payments in India, enabling users who may not have their own bank accounts or smart devices to make transactions easily.
What Remains Unchanged?
While the ₹5 lakh cap applies to high-value categories, the UPI limit for peer-to-peer transfers and other standard transactions remains at ₹1 lakh. This means that everyday users who are sending money to family or friends won’t see a change in their transaction limits. Categories such as international inward remittances, capital markets, and insurance payments also maintain a daily cap of ₹2 lakh.
Expert Insights on the UPI Limit Hike
Industry experts are optimistic about the effects of the increased UPI transaction limit. Rahul Jain, CFO of NTT DATA Payment Services India, noted that the higher limit would simplify tax payments for both individuals and businesses, while enhancing the efficiency and strength of the tax collection system. By encouraging digital payments and reducing cash dependence, this initiative aims to move India closer to becoming a cashless economy.
User Considerations and Bank-Specific Limits
Although the new limit is effective from September 16, 2024, users are advised to check with their respective banks and UPI service providers to confirm their support for the increased transaction limit. Not all banks may implement the change uniformly. For instance, Allahabad Bank’s UPI limit is currently set at ₹25,000, while HDFC Bank and ICICI Bank offer up to ₹1 lakh for peer-to-peer transactions.
Users should ensure that their banks have updated their systems to accommodate the new limits, especially for high-value transactions related to tax payments, healthcare, education, and investments.
Conclusion: UPI as the Preferred Payment Method
With the UPI transaction limit now raised to ₹5 lakh for specific categories, it’s clear that the NPCI and RBI are committed to expanding the scope of digital payments in India. This increase will enable users to transact seamlessly for higher-value transactions, covering crucial areas such as healthcare, education, and tax payments. By making these changes, UPI is evolving to meet the needs of users across various segments, from everyday purchases to significant financial obligations.
The Unified Payments Interface has already transformed the payment landscape in India, and with these latest updates, it is poised to play an even bigger role in driving financial inclusion and economic growth. As the country moves towards a cashless economy, Accosis is here to support businesses and consumers with innovative payment solutions that leverage the full potential of UPI.
