New Policy of UPI for NRIs

February 2, 2023

Context:

Recently, the Union Cabinet approved an incentive scheme for the promotion of RuPay debit Cards and low value BHIM UPI transactions (person merchant) in FY 2022-23. The scheme has an outlay of ₹ 2,600 crore.

Probable Question:

Q. What role does the digitization of payments play in the development of India’s economy? Discuss the challenges and opportunities it presents for the financial sector.

More on News:

Non resident accounts such as non resident external accounts (NRE) and non resident ordinary accounts (NRO), having international numbers, will now be allowed into the UPI payment system.
In 2018, the NPCI had allowed UPI transactions to and from NRO/NRE accounts linked to Indian numbers.

Compare and Contrast between NRE and NRO Account:

Information	NRE Account	NRO Account
About	An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings	An NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. These incomes include rent, dividend, pension, interest, etc.
Account type	Used by non-residents to transfer earnings from foreign soil to India	Used to manage income earned in India by non-residents
Tax	Exempt from tax. Neither the balance nor the interest earned is taxable	Interest earned is taxable at 30% according to the Income Tax Act 1961
Repatriation	Principal amount and interest accumulated are open to repatriation	Interest amount can be repatriated, principal amount can be remitted only up to USD 1 million in a financial year
Joint account	Can be opened with another NRI	Can be opened with one or more NRIs or Indian citizens

Implications of the policy

The development would allow NRIs to use the payment method for making utility bill payments for their families (or themselves) in India, make purchases from ecommerce or online platforms and make payments to physical merchants who accept UPI QR based payments when they travel to India.
Currently, all the internal systems as well as ecosystem players such as banks, NPCI, etc only understand India based mobile numbers for UPI transactions.
Infrastructural and technological changes required to support such payments will be needed to support the policy decision.

Additional Information:

About MDR:

Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails.
For instance, the MDR includes bank charges, which a bank charges customers and merchants for allowing payments to be made digitally.
Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.
Presently, there is no MDR charge levied for RuPay based debit card and UPI transactions. Stakeholders are hence concerned over cost recovery for the services they provide.
Concerns:

- The Reserve Bank of India (RBI) expressed concerns about the potential adverse impact of the zero MDR regime on the growth of the digital payments’ ecosystem.
- If banks pay for the MDR it will adversely affect their likelihood to adopt the digital payments architecture.

News Source: The Hindu