For ordinary payments made through the prescribed BHIM-UPI and BHIM-UPI QR modes, India’s official baseline is that banks and system providers must not charge the payer or beneficiary, including merchant discount rate (MDR). That rule does not automatically make every service a business buys from a payment provider free: credit-funded transactions have distinct terms, and equipment, software, reconciliation or support may be separately contracted services. A September 2026 government announcement describes a possible future MDR framework, but makes it conditional; it does not establish a final fee schedule.
What a UPI merchant fee is—and what the term can hide
“UPI merchant fees” can refer to several different things. The distinction matters because a transaction charge, a credit-related charge and a bill for a merchant service are not interchangeable.
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- Merchant discount rate (MDR): a charge associated with processing a merchant transaction. CBDT Circular 16/2020 addresses charges, including MDR, on specified electronic modes.
- Customer charge: an amount charged to the person making a payment. It is analytically separate from the merchant’s costs, even though the circular’s rule covers the payer as well as the beneficiary for the prescribed modes.
- Credit-related charge: possible interest, processing fees or other charges under a credit product. NPCI says Credit Line on UPI fees may vary by issuing bank.
- Separately contracted merchant service: for example, equipment, software, reconciliation or support. A price for one of these services is not automatically an MDR; the actual contract and service matter.
For a business evaluating an offer, the useful question is not simply “Is UPI free?” Ask what payment instrument and transaction type the quote covers, what the amount is for, who receives it, and which contract governs it.
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CBDT Circular 16/2020, dated 30 August 2020, explains how section 10A of the Payment and Settlement Systems Act, 2007 applies to the prescribed electronic modes under section 269SU of the Income-tax Act, including BHIM-UPI and BHIM-UPI QR. The circular says a bank or system provider may not impose a charge, including MDR, on the payer or beneficiary for payments through those modes from 1 January 2020. It also directs banks to refund charges collected on or after that date and not to impose them going forward on those modes.
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The circular calls charging for these prescribed modes a breach of the two provisions, stating: “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 the central rule for the modes it identifies—not a blanket statement that every product, funding source or separately purchased business service connected with a UPI payment must cost nothing.
Who and what the circular covers
The rule is about charges imposed by banks or system providers on payments made through the specified modes. It is not a provider-by-provider price list, and it does not describe the terms of every credit product or merchant-service contract. A merchant should identify the route actually used to accept a payment instead of treating the word “UPI” as enough to establish how every associated charge is classified.
Why a customer’s charge and a merchant’s bill need separate analysis
The circular expressly refers to both payer and beneficiary, but that does not make all charges a business might encounter the same kind of charge. A credit issuer’s fee, for instance, may arise under credit terms. A fee for a device or software service may arise under a separate merchant agreement. Check what the charge buys and who imposes it before deciding whether the ordinary prescribed-mode rule is relevant to it.
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How funding type changes the fee question
UPI is a payment interface, but payment arrangements can use different funding sources. NPCI’s material distinguishes ordinary UPI from RuPay credit cards linked to UPI, Credit Line on UPI and PPI-funded transactions. The available terms for one category should not be applied to another.
| Payment arrangement | What the official material says | What a business should take from it |
|---|---|---|
| Ordinary bank-account UPI through prescribed BHIM-UPI or BHIM-UPI QR modes | CBDT Circular 16/2020 says a bank or system provider may not charge the payer or beneficiary, including MDR, on the prescribed modes from 1 January 2020. | Use this as the baseline for the specific modes covered by the circular. Confirm that the transaction route in the offer is one of those modes. |
| RuPay credit card linked to UPI | NPCI’s operating circular describes an 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. | This is a distinct instrument-specific rule. The small-offline-merchant provision has both merchant and transaction conditions; do not assume it applies to every merchant or credit-funded payment. Check for later NPCI circulars before relying on it. |
| Credit Line on UPI | NPCI says fees may vary by issuing bank and advises users to ask the issuer about interest rates, processing fees or other charges. | Ask the issuer about the customer’s credit terms. Do not label issuer-side credit costs as ordinary merchant MDR. |
| PPI-funded UPI payment | NPCI says PPI holders can pay merchants through UPI interoperability without the merchant setting up a separate arrangement with every PPI issuer; its FAQ states there is no customer charge for these PPI-funded UPI transactions. | That statement addresses the customer charge and interoperability arrangement described by NPCI. It does not supply a complete price schedule for every merchant service. |
RuPay credit-card transactions
NPCI’s RuPay credit-card-on-UPI circular describes a separate flow of interchange and reimbursements for PSP and app providers. It also sets out a specific nil-MDR provision for small offline merchants on transactions of ₹2,000 or less, including no interchange, PSP or app-provider charges. The stated threshold is inclusive: a transaction exactly at ₹2,000 is within the provision described. The provision is limited by the small-offline-merchant classification and the instrument; it is not evidence that all RuPay credit-card-on-UPI transactions have nil MDR.
Credit Line on UPI
A credit line introduces issuer-side lending terms. NPCI directs users to the issuing bank for applicable interest rates, processing fees and other charges because these may differ across banks. Those costs concern the credit arrangement and should be reviewed separately from any charge an acquiring provider quotes to the merchant for accepting payments.
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PPI interoperability
NPCI describes UPI interoperability as allowing PPI holders to pay merchants without each merchant setting up a separate arrangement with each PPI issuer. NPCI’s FAQ also answers its customer-charge question with no customer charge for these PPI-funded UPI transactions. That customer-facing statement does not, by itself, settle the price of all other services a merchant might obtain.
Merchant category and acceptance route can affect eligibility
A merchant category code (MCC) identifies a business category within payment arrangements. NPCI’s FAQ says the acquiring bank should allocate the correct MCC based on the merchant’s business category. This matters where a rule or offer distinguishes merchants by category, as the RuPay provision does for small offline merchants.
Do not assume that a provider’s description of a business, a storefront’s appearance or a QR display settles its MCC or eligibility. Ask the acquiring bank to confirm the MCC assigned to the account and the classification used for the specific acceptance arrangement. If the business has more than one line of activity or accepts payments through different routes, ask how each is treated rather than relying on a single broad label.
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What the September 2026 announcement does—and does not—change
On 15 September 2026, the Ministry of Finance said UPI users would face no transaction charges and P2P transactions would remain free, while a nominal MDR could apply only to a limited set of merchant transactions above a threshold. The release made that possible merchant charge conditional on passage of a proposed amendment to the Payment and Settlement Systems Act and a subsequent decision by the UPI and Services Steering Committee.
The official material available for that announcement does not establish that the amendment has been enacted, when any change would take effect, which merchant categories or thresholds would be included, or what final rates would be. It should therefore be read as a proposal, not as a current merchant fee schedule. Do not budget from an assumed threshold or rate until there are enacted provisions and final implementing terms.
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For context, an earlier Ministry of Finance answer in the Lok Sabha on 18 August 2025 said there was then no proposal to impose UPI transaction charges. That was a statement about the position at that date; it does not override the later, conditional announcement.
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How a business should check a quoted UPI fee
Ask the acquiring bank or payment provider for an itemized explanation before accepting a rate or service bundle. Get the answers in writing and match them to the actual offer and agreement.
- Identify the transaction route. Ask whether the quote concerns ordinary bank-account UPI, a RuPay credit card linked to UPI, Credit Line on UPI, PPI funding or another arrangement. Confirm the payment mode the customer will use and whether the quoted amount applies to every route.
- Confirm the business classification. Request the MCC assigned by the acquiring bank and any additional merchant eligibility classification the offer uses. Ask how a category-dependent provision, including the small-offline-merchant condition for the stated RuPay rule, applies to the business.
- Ask what the amount is called and what it buys. Have the provider say whether it is transaction MDR, an issuer-side credit charge, or a separate price for equipment, software, reconciliation, support or another service. Ask whether it is calculated per transaction or billed under a separate service contract.
- Find out who sets and receives it. Ask which entity imposes each amount and who receives it. This helps distinguish a merchant acquiring charge from a customer-facing charge or a cost under a separate agreement.
- Review operating terms, not just the headline price. Check settlement timing, refunds, disputes and reconciliation arrangements alongside the fee. Compare the written terms for the acceptance route you actually plan to use.
- Check the rule and contract date. If a provider cites a new MDR policy, ask for the enacted legal basis, effective date and applicable category or threshold. If it relies on a product-specific NPCI provision, confirm whether a later NPCI circular has changed it.
For an apples-to-apples comparison between providers, hold the funding type and merchant category constant, then compare who charges and receives each amount, settlement and reconciliation terms, and whether a price is transaction-based or for a separately contracted service. Official material establishes the prescribed-mode baseline and selected product-specific distinctions, but does not provide a current comparable fee schedule for named providers.
How to interpret UPI acceptance figures
NPCI recorded 12,705.16 million UPI person-to-merchant (P2M) transactions worth ₹7,23,797.42 crore in August 2025. These are monthly figures for that period, not 2026 totals or a fee measure. They show the scale of merchant payments, but transaction volume alone does not tell an individual business what it will pay, which instrument customers will use or whether a quoted service charge is MDR.
What is not established by the published terms
The official sources described here do not provide a current, exhaustive set of provider contracts, merchant-service prices or a rate comparison among individual providers. They also do not supply final terms for the conditional September 2026 proposal. A blanket claim that every bundled merchant service is free—or, conversely, that every separate charge is permitted—cannot be derived from the MDR rule alone. Resolve the particular charge against the relevant law, product rules and signed contract.
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