Incentives paid by the government to banks for promoting RuPay debit cards and low-value BHIM-UPI transactions will not attract the goods and services tax (GST), the finance ministry said.

Last week the cabinet cleared a Rs 2,600-crore incentive scheme for banks to promote RuPay debit cards and low-value BHIM-UPI transactions in the current fiscal.

Under the incentive scheme for the promotion of RuPay debit cards and low-value BHIM-UPI transactions, the government pays banks an incentive as a percentage of the value of RuPay debit card transactions and low-value BHIM-UPI transactions up to a sum of Rs 2,000.

The Payments and Settlements Systems Act, 2007, prohibits banks and system providers from charging any amount from a person making or receiving payments through RuPay debit cards or BHIM.

In a circular to chief commissioners of GST, the ministry said the incentive is in the nature of a subsidy directly linked to the price of the service and the same does not form part of the taxable value of the transaction in view of the provisions of the Central GST Act, 2017.

“As recommended by the Council, it is hereby clarified that incentives paid by MeitY to acquiring banks under the incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions are in the nature of subsidy and thus not taxable,” it said.

In December alone, UPI achieved a record of 782.9 crore digital payment transactions with a value of Rs 12.82 lakh crore.

Separately, the ministry has also clarified the applicability of GST on accommodation services supplied by Air Force Mess to its personnel.

It said that the revenue department had received references requesting clarification on whether GST is payable on accommodation services supplied by Air Force Mess to its personnel.