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For a normal UPI payment funded from a linked bank account, the transaction itself is intended to be free for both the customer and the merchant. The National Payments Corporation of India (NPCI) said on 29 March 2023 that bank-account-to-bank-account UPI transactions “continue to remain free for Customers and Merchants.” The Reserve Bank of India (RBI) links that policy to Section 10A of the Payment and Settlement Systems Act, effective 1 January 2020.
That answer does not cover every payment source or every cost a business may see. A UPI payment funded from a prepaid wallet (a PPI) or a RuPay credit card linked to UPI follows a different pricing arrangement. A merchant may also pay for a separately contracted device, software, rental or acquiring service. The decisive questions are which account funded the payment, what kind of charge appears, the merchant’s category and transaction amount, and what the acquiring agreement says.
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Who pays UPI merchant fees?
There is no single fee rule for every transaction displayed as “UPI.” Separate the payment source from the type of charge before deciding who pays.
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| Payment source | What the official material says about the customer | What may apply on the merchant or ecosystem side | Important qualification |
|---|---|---|---|
| Linked bank account | The transaction is intended to be free to the customer. | NPCI says it remains free to both customer and merchant; no universal UPI MDR is established for the transaction itself. | Optional acquiring, software, device or other contracted services can still have their own prices. |
| PPI wallet on UPI | NPCI says there are no charges to the customer or PPI holder for PPI-on-UPI transactions. | Interchange applies to PPI merchant transactions under the applicable NPCI arrangement. It is an ecosystem charge, not a fee collected from the wallet holder. | The exact commercial allocation and any service fees depend on the arrangement and merchant contract. |
| RuPay credit card linked to UPI | This is a credit-card-funded transaction, not a bank-account UPI transaction. | NPCI’s operating circular sets interchange and related ecosystem pricing. It specifies nil MDR for a qualifying small offline merchant on a transaction up to ₹2,000. | The ₹2,000 exception is conditional; do not apply it to every merchant, channel or amount. |
So, when a shopkeeper asks “Is UPI free for merchants?”, the accurate answer is: ordinary bank-account UPI is free as a transaction under the cited policy, but other funding sources and separately contracted services must be checked separately.
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What “UPI fee” can mean
People use “UPI fee” for several different things. Naming the charge correctly prevents a customer fee from being confused with a merchant-side cost.
Payer or customer fee
This is an amount shown to the person making the payment. For prescribed electronic modes including UPI, the RBI’s Section 10A framework took effect on 1 January 2020. NPCI’s 2023 statement says bank-account-to-bank-account UPI continues to be free for customers and merchants. For PPI-on-UPI, NPCI’s FAQ likewise says there are no charges to the customer or PPI holder.
Merchant discount rate (MDR)
MDR is a merchant-side processing charge. The RBI describes it as the charge associated with accepting a payment and explains the policy direction that no MDR be collected for UPI and RuPay debit-card transactions from 1 January 2020. “No MDR” for the prescribed transaction does not mean a business can never have a payment-related expense: a contract for a terminal, soundbox, dashboard, settlement service or other optional feature is a separate question.
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Interchange is a payment-ecosystem charge between participating institutions. It is not automatically a fee charged to the person scanning a QR code. NPCI’s PPI-on-UPI material says interchange applies to PPI merchant transactions while the PPI holder pays no charge. The RuPay credit-card-on-UPI circular also sets interchange and related ecosystem charges. Whether any negotiated cost reaches a particular merchant depends on the acceptance arrangement.
Contracted provider service
An acquiring bank or payment provider may price equipment, rental, software, reconciliation, support or other services under its own agreement. The official material does not establish one current rate that applies to every acquirer or provider. Treat a line such as “platform fee,” “device rent” or “subscription” as contract-specific unless the provider expressly identifies it as MDR.
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Why ordinary bank-account UPI is free
For the usual transaction, the payer selects a bank account in a UPI app, authenticates the payment and sends money directly to the merchant’s account or merchant pool. NPCI’s 29 March 2023 institutional statement says: “These Bank account-to-account transactions continue to remain free for Customers and Merchants.” The statement is about bank-account-to-bank-account payments, not every product that can be used through a UPI interface.
The RBI’s explanation connects the no-charge rule to Section 10A of the Payment and Settlement Systems Act and says the prescribed-mode rule became effective on 1 January 2020. That is why a merchant should not assume that a customer must pay a percentage merely because the business accepts a QR payment.
Free transaction pricing also does not promise free operations. A merchant might choose a printed or electronic QR display, a voice notification device, a point-of-sale integration, reporting software or a bundled acquiring service. Those products can have commercial terms even when the underlying bank-account UPI transaction has no MDR. The merchant should read the acceptance agreement and the invoice line by line.
How PPI-wallet UPI payments differ
A prepaid payment instrument (PPI) wallet is a different source of funds from a linked bank account. When a customer pays from a PPI through UPI, NPCI’s published position is two-part:
- Interchange applies to PPI merchant transactions under the relevant arrangement.
- There are no charges to the customer or PPI holder for those UPI transactions.
That means “interchange applies” does not mean “the customer pays interchange.” Interchange is handled within the payment ecosystem. A merchant’s own agreement may explain whether any related service cost is passed through, bundled or absorbed, but a universal merchant rate is not established by the official material.
When checking a disputed charge, first identify whether the payer used a wallet balance or a bank account. The same QR code can accept both, so the visual appearance of the payment does not reveal the pricing category.
How RuPay credit card on UPI is priced
Linking a RuPay credit card to UPI creates a credit-card-funded payment. It should not be treated as an ordinary bank-account transfer merely because the customer scans a UPI QR code.
NPCI’s operating circular for RuPay credit cards linked to UPI (NPCI/2022-23/RuPay/019) describes interchange and related ecosystem charges. It also specifies a nil-MDR condition for a small offline merchant on a transaction up to ₹2,000, under the stated merchant classification. Every part of that description matters:
- The payment must be funded by the linked RuPay credit card.
- The merchant must meet the circular’s small-offline-merchant classification.
- The transaction amount must be no more than ₹2,000.
- The condition is not a blanket exemption for all merchants, online channels or higher-value transactions.
If a merchant sees a charge on a credit-card-on-UPI settlement, it should compare the transaction type, merchant category code (MCC), channel and amount with the current acquiring terms. Do not use the bank-account UPI rule to predict that result.
Can a merchant add a UPI surcharge?
For a customer paying from a linked bank account, NPCI’s stated policy is that the bank-account transaction is free to both sides. Therefore, a checkout line labelled “UPI fee” should not be accepted as proof that a standard UPI percentage is universally allowed. Ask what the line represents and which payment source triggered it.
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The available official material does not provide one universal rule covering every possible convenience fee, service charge or merchant contract. A business may be referring to a separately contracted service rather than MDR, or it may be applying a charge to a different funding source. The merchant should be able to identify the contractual basis, the provider and the applicable transaction category.
For a customer who encounters a surcharge:
- Keep the receipt or screenshot showing the amount, payment method and any fee description.
- Ask the merchant whether the payment used a bank account, PPI wallet or RuPay credit card and request the exact fee name.
- Ask whether the amount is a provider service charge, a contract pass-through or a claimed MDR.
- If the explanation is unclear, contact the bank or UPI app involved and the merchant’s acquiring bank. NPCI directs merchants to their acquiring bank for onboarding and transaction grievances; the acquirer can identify the merchant’s arrangement.
Do not assume that changing the QR display will change the pricing. The funding source and acceptance agreement are what matter.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How a merchant starts accepting UPI
NPCI says a merchant seeking acceptance partners with an acquiring bank. The bank performs compliance and risk checks, creates the merchant identifiers and configures the merchant information, including the MCC.
- Choose an acquiring relationship. Apply through an acquiring bank or an acceptance provider that operates under an acquiring arrangement.
- Complete verification. Provide the business and settlement information required for compliance and risk assessment.
- Confirm the MCC. The acquiring bank assigns the merchant category code. This code can affect how a transaction is classified, including whether a RuPay credit-card condition applies.
- Select the integration mode. NPCI lists QR, intent, application-based and collect modes. The right mode depends on whether the business uses a static or dynamic QR, a mobile checkout, an app or a payment request.
- Read the commercial terms. Check settlement timing, equipment rent, software charges, support fees, dispute handling and any payment-source-specific pricing.
- Test reconciliation. Match a customer payment, the merchant notification and the settlement report before relying on the setup at scale.
NPCI says funds are received immediately after the customer confirms payment into the merchant pool or bank account according to the merchant’s agreement. “Immediately” therefore describes the payment flow; the exact destination and reporting process still follow the signed arrangement.
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A countertop QR card, stand or other display accessory can show the merchant’s code. It does not by itself create a merchant account, complete KYC, route the payment or settle funds. The merchant must obtain and activate the QR through its acceptance arrangement. Replacing a damaged sign is a physical change, not a new acquiring relationship.
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What to check when a fee appears
Use this checklist for a bank statement, settlement report or customer receipt that includes an unexpected amount.
- Funding source: linked bank account, PPI wallet or RuPay credit card.
- Charge label: payer fee, MDR, interchange, device rental, subscription, reconciliation fee or another description.
- Merchant category: verify the MCC assigned by the acquiring bank.
- Channel: in-store offline QR, online checkout, intent, collect or an application-based flow.
- Amount: especially whether a RuPay credit-card transaction is at or below ₹2,000.
- Contract: locate the schedule of charges and the settlement clause in the merchant agreement.
- Date and rule version: payment arrangements can change, so use the terms that applied when the transaction was processed.
If the charge is described only as “UPI fee,” request a more precise invoice description. The phrase alone does not tell you whether it is a prohibited customer charge, an ecosystem interchange item or a separately purchased service.
How large is UPI merchant usage?
NPCI’s ecosystem statistics show 12,705.16 million person-to-merchant (P2M) UPI transactions in August 2025. That figure demonstrates the scale of merchant acceptance; it does not show how many merchants paid a fee, which funding sources were used or what the volume was in 2026. Transaction volume and fee incidence are separate measurements.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchThe practical answer for a shopkeeper or customer
A shopkeeper accepting a customer’s ordinary bank-account UPI payment should expect the transaction itself to be free under the cited NPCI and RBI framework. A wallet-funded UPI payment has an ecosystem interchange arrangement but no customer/PPI-holder charge according to NPCI. A RuPay credit-card UPI payment has its own pricing rules, including a narrowly described nil-MDR case for qualifying small offline merchants up to ₹2,000.
When a charge is reported, identify the source of funds, the charge type, the merchant’s MCC, the channel and the contract before deciding who pays. That method is more reliable than treating every QR payment as identical.
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