Paying by UPI With a RuPay Credit Card? The New 0.4% Fee Does Not Apply, but Card Charges Do

From 15 October, merchants pay 0.4% on UPI payments above ₹2,000. If I pay a shop ₹5,000 through UPI using a RuPay credit card instead of my bank account, does the same 0.4% apply?

No. The government’s own FAQ on the new fee answers this directly: UPI payments made from a RuPay credit card, or from a bank credit line, sit outside the 0.4% framework and “follow standard credit card guidelines.” That is not good news for the merchant. Credit card payments on UPI have carried card-style merchant charges since they were allowed in 2022, and those charges are normally higher than 0.4%, not lower.

What the government’s FAQ says, word for word

The Department of Financial Services published 42 questions and answers on 15 September, the day the fee was announced, and NPCI hosts the same document. Question 36 asks exactly this: “Does MDR apply to transactions made via Credit Cards linked on UPI or Credit Lines?” The answer in full:

Credit-linked UPI payments, such as RuPay Credit Cards linked to UPI or pre-sanctioned bank credit lines, operate under separate credit product rules. Because credit-linked transactions involve short-term loans funded by issuing banks, they follow standard credit card guidelines. The MDR discussed in this amendment apply specifically to direct users-account-to-merchant-account UPI transactions.

Department of Financial Services, FAQ on MDR on select UPI (P2M) transactions, Q36

Two kinds of payment are named there. RuPay credit cards have been linkable to UPI since the Reserve Bank said on 8 June 2022 that “to start with Rupay credit cards will be enabled with this facility.” Pre-sanctioned credit lines, loans a bank approves in advance and lets you spend through UPI, followed under RBI circular RBI/2023-24/58 of 4 September 2023. Both are borrowed money, and both stay on credit card terms.

So is a credit card payment on UPI free for the merchant?

Only in one narrow case. When NPCI set the rules for RuPay credit cards on UPI in its operating circular NPCI/2022-23/RuPay/019 of 4 October 2022, it made one exemption: “Nil MDR (no interchange, PSP & app provider charges) shall apply for this category up to the transaction amount less than and equal to Rs 2,000,” the category being small merchants. Above ₹2,000, or at any merchant that is not small, the card’s existing interchange rates apply, as Inc42 reported from the circular the day it was issued.

That creates an inversion most coverage of the new fee has missed. At a regular shop, a ₹1,500 payment from your bank account through UPI costs the merchant nothing, even after 15 October. The same ₹1,500 from a RuPay credit card through the same UPI app is not covered by any exemption: the circular’s ₹2,000 free band on the card side is written for small merchants only, so the card’s normal charges can apply.

What the difference looks like in rupees

None of the documents we read publishes a specific merchant charge for RuPay credit cards on UPI, so the table below does not invent one. It uses the government’s own figure from Q4 of the same FAQ, “standard credit card MDRs typically range from 1.5% to 2.5%”, to show the likely size of the gap at a regular merchant.

The pattern holds at every size. On a ₹1 lakh payment the bank-account route costs a regular merchant ₹300 at most, while a credit card at the government’s own typical range costs five to eight times that. For the full breakdown of the new fee itself, including the ₹5 categories, see our explainer on the October framework.

Two different tests for a “small merchant”

Both systems exempt small merchants, but they do not use the same definition, and a shop can pass one test while failing the other.

Where the fee goes, and who cannot be charged

The question that prompted this piece asked whether the government would charge the 0.4%. It does not collect it. According to the FAQ’s first answer, the MDR “is distributed only amongst the UPI ecosystem”, meaning the banks and payment companies that run the system, to pay for infrastructure, fraud prevention and customer service. The merchant pays it to its acquiring bank.

The same document sets three protections for customers paying from a bank account. Consumers are not charged (Q15). UPI apps may not add a platform fee (Q17). And merchants “cannot pass on MDR charges to customers while accepting payments through UPI” (Q34).

What we could not confirm

Two limits on this answer, stated plainly. First, the exact merchant charge on a RuPay credit card payment through UPI is not published in any of the documents we read; it depends on the card network’s interchange and on what the acquiring bank charges the merchant. The 1.5% to 2.5% range above is the government’s general figure for credit cards, not a RuPay-specific rate. A merchant who wants the real number should ask the bank or payment aggregator that issued its QR code.

Second, NPCI’s website did not allow direct retrieval of its 2022 circular while this was being written. Its nil-MDR rule for small merchants is quoted as reproduced by Inc42 on the day of issue and as indexed from NPCI’s own copy. If NPCI has changed those terms since, this page will be corrected.