For ordinary payments made through the prescribed BHIM-UPI and BHIM-UPI QR modes, India’s official baseline is that banks and system providers cannot charge the payer or beneficiary, including through merchant discount rate (MDR). CBDT Circular 16/2020 says charges collected on those modes from 1 January 2020 should be refunded and that charges should not be imposed going forward. That rule is not a blanket promise that every optional service a business buys from a payment provider is free. Funding type, merchant category and contract terms all matter.
A separate Ministry of Finance announcement in September 2026 described a possible future MDR for a limited set of merchant transactions above a threshold, but made it conditional on a proposed legal amendment and a later committee decision. The official material available as of 10 October 2026 does not establish an enacted amendment, an effective date, final categories, thresholds or rates. Businesses should treat that announcement as a proposal—not a current fee schedule.
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What the no-charge rule covers—and what it does not
CBDT Circular 16/2020, dated 30 August 2020, explains that section 10A of the Payment and Settlement Systems Act, 2007 applies to prescribed electronic modes under section 269SU of the Income-tax Act, including BHIM-UPI and BHIM-UPI QR. It states that any charge, including MDR, is not applicable on those modes from 1 January 2020. It also directs banks to refund charges collected on or after that date and not impose future charges on those modes.
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The circular states: “Such practice on part of banks is a breach of section 10A of the PSS Act as well as section 269SU of the IT Act.” This is a statement in CBDT Circular 16/2020, not a separate rate card or a rule that can automatically be applied to every funding method and service.
Keep three kinds of charge separate
- Customer charge: an amount charged to the person paying. For the prescribed modes covered by the CBDT circular, a bank or system provider may not impose a charge on the payer.
- Merchant-side transaction charge: MDR or another charge associated with processing a payment. The no-charge baseline applies to the prescribed BHIM-UPI and BHIM-UPI QR modes described in the circular; distinct credit-funded products have their own rules and terms.
- Separately contracted service: a price for an additional merchant product or service. The circular’s prescribed-mode rule alone does not establish that every such service is free or settle every bundled-service question. Check the actual contract and what the price buys.
This separation prevents two common errors: assuming that every item on a provider invoice is prohibited MDR, or assuming that an optional service fee means the underlying ordinary UPI transaction itself has a fee.
Why the way a customer funds UPI matters
“UPI payment” does not identify every relevant transaction detail. An ordinary bank-account payment, a RuPay credit card linked to UPI and a credit line on UPI are not interchangeable for fee analysis. The NPCI material describes distinct arrangements for credit-funded transactions, while the CBDT circular sets the baseline for its prescribed modes. A provider comparison should therefore start by identifying the funding instrument rather than treating every QR scan as the same transaction.
| Payment or funding type | What the official material establishes | What a business should verify |
|---|---|---|
| Ordinary BHIM-UPI or BHIM-UPI QR payment in a prescribed mode | CBDT Circular 16/2020 states that a bank or system provider may not impose a charge, including MDR, on the payer or beneficiary for these modes. It calls for refunds of charges collected from 1 January 2020 and says charges should not be imposed going forward. | Confirm that the transaction and acceptance route fall within the prescribed mode, and identify whether any quoted price is for a separate contracted service rather than the payment itself. |
| RuPay credit card linked to UPI | NPCI’s operating circular describes a distinct interchange arrangement and an additional reimbursement to PSP and app providers. It specifies nil MDR—including no interchange, PSP or app-provider charges—for small offline merchants on transactions at or below ₹2,000. | Check the merchant’s category and eligibility, whether the merchant is offline, the transaction amount and whether later NPCI circulars have changed the provision. |
| Credit Line on UPI | NPCI says issuer-bank fees may vary and directs customers to ask the issuer about interest, processing fees or other charges. These are issuer-side credit terms, not ordinary merchant MDR. | Identify the issuing bank and confirm applicable credit terms. Do not assume ordinary bank-account UPI terms apply. |
| PPI-funded UPI payment | NPCI says PPI holders can pay merchants through UPI interoperability without a merchant setting up a separate arrangement with every PPI issuer. Its FAQ states there is no customer charge for these PPI-funded UPI transactions. | Confirm the transaction is PPI-funded and distinguish the customer-charge statement from any separate merchant service contract. |
The RuPay provision is specific: the stated nil-MDR treatment applies to small offline merchants and transactions at or below ₹2,000 under the NPCI circular described here. It is not a general statement that every credit-card-linked UPI transaction has no interchange or provider-related charges. Because that treatment can depend on category and later circulars, a merchant should confirm the current rule with its acquiring bank before relying on it.
Merchant category can change the applicable treatment
NPCI’s FAQ says the acquiring bank should assign the merchant category code (MCC) that corresponds to the business category. An MCC is therefore not a detail to leave until after comparing prices: it can be central to whether a particular product-specific rule or eligibility condition applies.
Ask the acquiring bank to confirm the MCC on the merchant account and explain the business activity it represents. If a business has more than one kind of activity or an offer refers to a category such as “small offline merchant,” ask which exact account, location and transactions qualify. Do not assume that a label in a sales conversation or a QR display determines eligibility. The relevant classification and acceptance terms should be confirmed with the acquiring bank.
What the September 2026 MDR announcement means
The Ministry of Finance press release dated 15 September 2026 said UPI users would face no transaction charges and P2P transactions would remain free. It also described nominal MDR applying only to a limited set of merchant transactions above a threshold. But the release made this prospective framework contingent on passage of a proposed amendment to the Payment and Settlement Systems Act, followed by a decision by the UPI and Services Steering Committee.
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That conditional sequence matters. As of the official material dated through 10 October 2026, there is no established enactment, effective date, final list of merchant categories, threshold or final rate for the proposed framework. A merchant should not treat a possible future charge as an amount currently payable, and should not use the announcement to infer which transactions will ultimately be covered. The Ministry of Finance’s Lok Sabha answer of 18 August 2025 had earlier said there was no proposal at that time to impose UPI transaction charges; the 2026 release is a later, conditional policy statement, not evidence that a final fee schedule has taken effect.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to check a provider’s offer before accepting it
Compare the actual acceptance arrangement rather than a headline such as “free UPI.” Ask for the offer in writing and make the provider identify each transaction type and each non-transaction service. The following sequence helps expose whether a quoted amount is a payment charge, a credit-product term or a price for something else.
- Identify the payment instrument. Ask whether the offer covers ordinary bank-account UPI, RuPay credit card on UPI, Credit Line on UPI, PPI-funded payments or more than one of these. Request the treatment for each separately.
- Confirm the merchant classification. Ask the acquiring bank for the MCC assigned to the business and what category or eligibility assumptions the quote uses. For RuPay credit-card-on-UPI treatment, specifically confirm offline status, merchant eligibility and how the transaction amount affects the stated small-merchant provision.
- Ask what each charge is for. Request the amount, charging basis, recipient and contractual description for every quoted item. Have the provider distinguish MDR or a transaction-related charge from equipment, software, reconciliation, support or another separately contracted service.
- Check the payer side separately. Ask whether the proposed amount is charged to the customer or the merchant, and which payment mode it concerns. Do not let a customer-charge answer substitute for an explanation of the merchant contract.
- Read settlement and operating terms. Review settlement timing, refunds, disputes and reconciliation terms alongside the price. These details affect how the arrangement works for the business even when they do not establish an MDR rate.
- Keep the terms with the account records. Save the written offer, acceptance terms and later amendments. If an invoice later shows a charge whose purpose is unclear, compare it with the contract and ask the provider to identify the service or transaction category in writing.
A useful side-by-side comparison has a row for each funding type and records the MCC or eligibility conditions, who sets and receives each charge, settlement and reconciliation terms, and whether a quoted amount buys transaction processing or a separate service. If a provider cannot say which category an amount belongs to, the offer is not yet specific enough to compare.
Questions to ask when a charge appears
If the charge is described as UPI MDR
Ask for the transaction type, payment mode, date, amount, merchant category and contract clause associated with it. If it is an ordinary payment through a prescribed BHIM-UPI or BHIM-UPI QR mode, compare the charge with the scope described in CBDT Circular 16/2020 and raise the discrepancy with the bank or system provider. The circular says charges collected on the covered modes from 1 January 2020 should be refunded; retain the statement or invoice that identifies the charge when seeking an explanation or correction.
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If the charge is on a credit-funded transaction
Ask whether it relates to a RuPay credit card linked to UPI or to a Credit Line on UPI. For the former, verify the specific NPCI category, offline and amount conditions, as well as any later circular. For the latter, ask the issuer about applicable interest, processing fees and other credit charges; do not classify issuer-side credit terms as ordinary merchant MDR.
If the charge is for a service or equipment
Ask what is supplied, whether the price is one-time or recurring, who provides the service and where the obligation appears in the contract. The official rule for prescribed payment modes does not, by itself, establish a current price or legal treatment for every bundled merchant service. The provider’s actual terms are necessary to determine what a particular quote covers.
What UPI transaction volume does—and does not—tell a merchant
NPCI reported 12,705.16 million UPI P2M transactions, worth ₹7,23,797.42 crore, in August 2025. P2M means person-to-merchant transactions. Those figures describe activity in that specific month; they are not 2026 data, an estimate of any one business’s transaction volume or evidence of a particular provider’s fee.
For an individual business, the practical question is not whether UPI is widely used but whether a particular offer fits its payment mix and operating needs. A high transaction count does not establish that every form of UPI acceptance has identical terms, nor does it make optional services part of MDR.
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QR displays and other acceptance equipment
A UPI QR payment standee for shops is a display for the merchant’s QR code; it does not itself process a payment or determine the fee. NPCI documents QR-based merchant acceptance, and CBDT Circular 16/2020 identifies UPI QR as a prescribed electronic mode. Before buying a display or related equipment, confirm what the merchant needs and whether the provider’s price is for a physical item or a separate service.
A payment-confirmation soundbox is a different, adjacent product. NPCI’s material says users and merchants receive notifications for successful UPI Global Acceptance payments, but that does not establish that a soundbox is required, available for a particular domestic arrangement or included in any provider’s offer. Treat equipment claims as product-specific and check current merchant terms rather than inferring them from the UPI fee rule.
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