SEBI Chairman Tuhin Kanta Pandey is examining broker concerns regarding the new 0.02% UPI transaction fee scheduled for October 15. The regulator is weighing whether to classify stock market fund transfers differently from standard merchant payments to prevent unnecessary costs for investors and brokerage firms.
The Securities and Exchange Board of India (SEBI) is reviewing the upcoming implementation of UPI transaction fees on capital market transfers. Ahead of the October 15 deadline, when a 0.02% UPI transaction fee—capped at ₹300 per transaction—is set to take effect, brokerages have raised significant concerns regarding the financial impact on their operations. SEBI Chairman Tuhin Kanta Pandey recently acknowledged these complaints, noting that the regulator is currently evaluating whether these fund movements should be classified differently than standard merchant payments.
The core issue lies in how fund transfers between a client’s bank account and their brokerage account are processed. Currently, stockbrokers are required to follow strict fund settlement rules, which mandate that unutilized client funds be returned to the investor periodically. This process often involves the frequent movement of capital back and forth. Brokers argue that characterizing these transfers as merchant transactions—similar to buying goods or services at a retail store—is technically incorrect. Because the capital belongs to the client and is being held temporarily by the broker, treating these moves as taxable merchant transactions could create a recurring cost burden.
If the fee structure proceeds without changes for capital markets, it may create friction for retail investors. Brokerages often operate on thin margins, and additional transaction costs could potentially lead to operational pressure or increased service charges for account holders. SEBI’s evaluation focuses on ensuring that the upcoming UPI fee mandate does not penalize investors who are simply moving their own money to trade or settle accounts in the stock market.
Investors and market participants should track the outcome of these discussions as the October 15 deadline approaches. The regulator's decision will determine whether stock market intermediaries receive an exemption or a specific reclassification for capital market fund flows. If granted, this would effectively remove this cost pressure from the capital market ecosystem, preventing the unintended consequence of taxing the same capital multiple times.