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For prescribed BHIM-UPI and BHIM-UPI QR payments in India, CBDT Circular 16/2020 says banks and system providers must not charge the payer or beneficiary, including merchant discount rate (MDR). That rule does not establish that every service a business buys from a payment provider is free, or that every credit-funded UPI transaction follows the same terms. To assess a fee, first identify the payment method, funding source, merchant category and service being charged for.
What the no-charge rule covers
The central rule for ordinary merchant acceptance is in CBDT Circular 16/2020, dated 30 August 2020. It 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. The circular states that a charge, including MDR, is not applicable on these payments from 1 January 2020. It directs banks to refund charges collected on or after that date and not to impose charges on those modes going forward.
The circular identifies both the payer and beneficiary as protected from charges imposed by a bank or system provider on the prescribed modes. For a business receiving a qualifying payment, that means the cited baseline does not permit a bank or system provider to levy MDR on that payment. The circular describes such a practice as “a breach of section 10A of the PSS Act as well as section 269SU of the IT Act.” This is the circular’s statement, not a claim about every payment-related service a business may purchase.
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The scope matters: this is a rule for the specified electronic modes and named actors, not a blanket promise that every product, contract or cost associated with accepting payments is free. Do not apply the rule automatically to a credit product, an optional merchant service, or an arrangement whose payment route and terms have not been identified.
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Separate transaction charges from other costs
MDR is a transaction-related merchant charge. A provider may also offer a business equipment, software, reconciliation or support service under a separate contract. The CBDT circular establishes the prescribed-mode MDR baseline; it does not, by itself, determine the price or legality of every separately contracted service. Nor do the official sources cited here provide a current, comparable price list for providers.
When a provider quotes a fee, ask for its name and basis in writing. In particular, establish whether it applies per transaction, periodically, once for equipment, or only when a service is used; who receives it; and whether it is deducted from settlement or invoiced separately. Those are questions to resolve from the actual offer and contract, not assumptions to make from the word “UPI.” A separate line item does not automatically establish that it is MDR, just as calling an amount a service fee does not by itself explain what the business receives.
- Transaction MDR: Ask which funding type and payment category it applies to, and whether it is being charged on a prescribed BHIM-UPI or BHIM-UPI QR payment.
- Equipment or software: Request the product, service period, price basis and cancellation or return terms. Do not treat a separate contract as proof that an MDR charge is allowed, or as proof that the service is free.
- Settlement, reconciliation or support: Confirm whether these are included, optional, or billed separately, and identify the contract terms governing them.
The available official material does not settle every possible bundled-service question. A business should assess the specific service terms rather than infer that all merchant services are either prohibited or permitted by the MDR rule alone.
Keep the payer’s charge and the merchant’s cost distinct when reviewing a quote or answering customer questions. The circular’s no-charge baseline refers to charges on the payer or beneficiary for prescribed modes. A merchant should not assume that an optional service bill to the business is the same thing as a transaction charge passed to the customer; likewise, it should not describe every credit-related term as ordinary UPI MDR.
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Funding source can change the applicable terms
“UPI payment” does not always describe the same funding arrangement. A bank-account payment, a RuPay credit card linked to UPI, a credit line on UPI, and a payment funded from a prepaid payment instrument (PPI) have distinct treatment in the cited NPCI material. A rule or fee for one of these should not be generalized to all the others.
| Payment arrangement | What the cited official material establishes | What to verify |
|---|---|---|
| Prescribed BHIM-UPI or BHIM-UPI QR payment | CBDT Circular 16/2020 says no charge, including MDR, may be imposed by a bank or system provider on the payer or beneficiary for the prescribed modes; it calls for refunds of charges collected from 1 January 2020. | Confirm that the transaction is actually on the prescribed mode and identify any separately contracted service charge. |
| RuPay credit card linked to UPI | NPCI’s operating circular describes a distinct interchange arrangement and 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, offline status, transaction amount and any later NPCI circulars before relying on the small-merchant 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. | Ask the issuing bank about credit terms; do not label issuer-side interest or fees as ordinary merchant MDR. |
| PPI-funded UPI payment | NPCI says PPI holders can pay merchants through UPI interoperability without the merchant arranging separately with each PPI issuer; its FAQ states that customers are not charged for these PPI-funded UPI transactions. | Confirm the funding source and applicable merchant acceptance terms rather than extrapolating the customer-charge statement to unrelated fees. |
The ₹2,000 threshold is tied to the RuPay-credit-card-on-UPI provision for small offline merchants described in NPCI’s circular; it is not a general UPI threshold. Because that circular is instrument- and category-specific, a merchant should verify that the current NPCI rules still contain the provision and that the business qualifies.
For a customer asking whether a PPI-funded UPI payment has a customer charge, NPCI’s FAQ frames the question directly: “As a customer, are there any charges to be paid by me for PPI on UPI transactions?” The FAQ states there is no customer charge for these transactions. That answer concerns the PPI-funded transaction described there; it should not be stretched to cover every bank-account, credit-funded or separately contracted merchant arrangement.
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NPCI’s FAQ says an acquiring bank should assign the correct merchant category code (MCC) based on the merchant’s business category. MCC and eligibility can matter when a rule distinguishes merchant types, as the cited RuPay credit-card provision does. A business should ask its acquiring bank to confirm its assigned MCC instead of assuming the provider has classified it correctly or that all payment routes use identical treatment.
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- Identify the route: Ask whether the offer covers BHIM-UPI, BHIM-UPI QR, RuPay credit card on UPI, Credit Line on UPI, PPI-funded payments, or more than one of these.
- Confirm classification: Request the MCC on the merchant account and ask which merchant category or eligibility conditions the quoted rate or rule uses.
- Get each charge itemized: Have the bank or provider name each amount, its basis, when it recurs, and who receives it. Ask whether it is transaction MDR or a separately contracted service.
- Read the operational terms: Review settlement timing, refunds, disputes, reconciliation and support terms in the actual offer. These affect how the arrangement works for the business but are not a provider-by-provider fee schedule.
- Keep the documents: Retain the proposal, applicable contract and written clarification of the transaction category and MCC so that a later settlement deduction can be compared with the agreed terms.
If a charge appears on a payment that the circular covers, first compare the payment mode, date, charge description and counterparty with the written terms. Ask the provider or acquiring bank to explain the charge and its basis. The circular directs banks to refund covered-mode charges collected on or after 1 January 2020; the cited sources do not specify a complaint form, provider-specific escalation sequence or resolution deadline, so request the relevant process from the bank or provider.
NPCI’s FAQ directs readers to RBI Master Directions for additional information. That direction is a useful place to continue checking regulatory context, but it does not replace reviewing the actual acceptance offer. The official material available for this comparison does not establish a complete set of current provider contracts, bundled-service terms or prices.
What to compare when choosing an acceptance arrangement
There is no current named-provider rate comparison established by the cited official sources. A useful comparison therefore starts with like-for-like terms rather than headline figures alone. Request the same information from each bank or provider and keep distinct payment instruments in separate rows.
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- Funding type: Record whether the payment is bank-account UPI, RuPay credit card on UPI, Credit Line on UPI or PPI-funded. The rules and potential charges described by NPCI are not interchangeable.
- MCC and eligibility: Check the assigned merchant code, offline or other relevant classification, and any transaction threshold that conditions a provision.
- Charge and recipient: Separate transaction MDR from charges for equipment, software, reconciliation, support or other services. Ask who sets and receives each amount.
- Settlement and operations: Compare the written settlement, refund, dispute, reconciliation and support terms. Do not infer these from the MDR rate.
- Contract conditions: Check recurring versus one-time amounts, duration, cancellation terms and any service dependencies in the actual contract.
If a provider’s quote combines multiple items, ask it to separate them before comparing offers. Without the itemization, it may be impossible to tell whether a disputed amount is a transaction fee or payment for a different service. The cited sources do not support inventing rates or declaring one provider cheaper than another.
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Is a UPI QR standee part of the fee?
A UPI QR payment standee for shops can be a practical accessory for in-person acceptance: it displays the merchant’s QR code so a customer can scan it. It is not itself the payment rail, does not process the payment and does not determine the fee. NPCI documents QR-based merchant acceptance, while the government circular identifies UPI QR among the prescribed electronic modes. If a provider offers a standee, ask whether it is included, sold separately or tied to another service, and check the written terms rather than assuming a price or a fee benefit.
A payment confirmation soundbox is a more indirect consideration. NPCI says users and merchants receive notifications for successful UPI Global Acceptance payments, but that statement does not establish that a named soundbox is required, available for a particular domestic setup, or included in any provider or affiliate offer. Treat equipment availability and cost as provider-specific questions and verify current terms before recommending a device.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Has India proposed new UPI merchant charges?
A Ministry of Finance answer in the Lok Sabha on 18 August 2025 said there was no proposal at that time to impose UPI transaction charges. A later Ministry of Finance press release dated 15 September 2026 described a possible change: UPI users would face no transaction charges, person-to-person (P2P) transactions would remain free, and nominal MDR might apply only to a limited set of merchant transactions above a threshold.
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How much UPI merchant activity is involved?
NPCI reported 12,705.16 million UPI person-to-merchant (P2M) transactions worth ₹7,23,797.42 crore in August 2025. P2M means person-to-merchant; these figures describe that month and are not 2026 totals. The scale helps explain why payment classification and clear contracts matter, but it does not establish an individual merchant’s fee or a provider’s current pricing.
Frequently Asked Questions
Are UPI merchant payments free for a business?
For prescribed BHIM-UPI and BHIM-UPI QR modes, CBDT Circular 16/2020 says a bank or system provider may not impose a charge, including MDR, on the payer or beneficiary. That does not mean every optional service a merchant buys is free, or that all credit-funded UPI arrangements have identical terms.
Can a provider charge MDR on RuPay credit card payments through UPI?
NPCI’s circular describes a separate interchange arrangement and specifies nil MDR, including interchange and PSP or app-provider charges, for small offline merchants on RuPay credit-card-on-UPI transactions at or below ₹2,000. This is a specific provision, not a general UPI threshold; verify current NPCI rules and the merchant’s eligibility.
Are there fees on Credit Line on UPI?
NPCI says issuer-bank fees may vary and advises customers to ask the issuing bank about interest, processing fees or other charges. These are credit terms and should not be described as ordinary merchant MDR.
Does a merchant need a separate arrangement with each PPI issuer to accept PPI-funded UPI?
NPCI says PPI holders can pay merchants through UPI interoperability without a separate arrangement between the merchant and each PPI issuer. Its FAQ also states that customers are not charged for these PPI-funded UPI transactions.
Has a new UPI MDR rate been finalized for 2026?
The Ministry of Finance release dated 15 September 2026 described possible nominal MDR for a limited set of merchant transactions above a threshold, contingent on a proposed law amendment and a later committee decision. The available official material does not establish enactment, an effective date, final categories, thresholds or rates.
The Bottom Line
For prescribed BHIM-UPI and BHIM-UPI QR payments, the cited baseline bars bank and system-provider charges, including MDR, and calls for refunds of covered charges collected from 1 January 2020. Keep that rule separate from credit-funded UPI terms and separately contracted services. Before accepting a quote, verify the funding route, MCC, eligibility, itemized charges, recipients and contract terms; treat the September 2026 MDR announcement as conditional, not a final rate schedule.
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