RuPay Credit-Card-on-UPI: The 2% Surcharge Hidden Inside "UPI"

A Bengaluru-based OTT video subscription business with 40,000 active subscribers on a ₹2,499 monthly plan reads its quarterly gateway dashboard. Total processed: ₹29.97 crore. The instrument-mix line says “UPI: 65%”. The finance controller assumes the zero-MDR rail covers that volume — the standard interpretation since the RBI/CBDT zero-MDR mandate took effect on 1 January 2020. The CFO assumes the same. The numbers in the monthly P&L assume the same.

The assumption is wrong. NPCI permitted RuPay credit cards to ride the UPI rail in an October 2022 circular. Above a ₹2,000 ticket the merchant pays approximately 2% interchange — split roughly 1.5% to the issuing bank and 0.5% to the network and acquirer. The customer is charged nothing extra. The gateway often labels the entire UPI line as just “UPI”. On a ₹2,499 ARPU subscription business with even a small RuPay-credit-on-UPI mix, the leakage compounds every billing cycle and never surfaces unless the settlement file is split by sub-instrument before the journal entries hit the GL.

This article walks the regulatory basis, the structural confusion, a worked OTT example, and the reconciliation discipline that prevents the silent margin drain.

Quick reference: RuPay-credit-on-UPI cost map

What did NPCI’s October 2022 circular actually permit?

The October 2022 NPCI circular extended the UPI rail to RuPay credit cards. Until that point, UPI carried only bank-account-debit P2M flows and RuPay debit P2M flows — both within the zero-MDR prescription under Section 269SU of the Income-tax Act 1961 and Section 10A of the Payment & Settlement Systems Act 2007. The CBDT notification under Rule 119AA prescribed those two modes.

Update, 26 September 2026 — the new UPI MDR does not apply to RuPay credit on UPI. From 15 October 2026 the zero-MDR bar on bank-account UPI P2M narrows to transactions at or below ₹2,000; above that, a 0.4% MDR applies, capped at ₹300 per transaction at or above ₹75,000 (Ministry of Finance notification of 14 September 2026; NPCI FAQ dated 15 September 2026). The same FAQ (Q36) states that RuPay credit cards and credit lines on UPI operate under separate credit-product rules and are outside that MDR. The approximately 2% cost on RuPay credit on UPI above ₹2,000 described in this article is therefore unchanged. One practical consequence: from 15 October the bank-account UPI comparator is no longer zero above ₹2,000, so the gap between the two sub-instruments narrows from about 2 percentage points to about 1.6 in the ₹2,000–₹75,000 band — the split-by-sub-instrument discipline below still applies, but the expected rate for each bucket has to use the new schedule. The notified framework, effective 15 October 2026, is currently subject to a pending Supreme Court challenge (PIL filed 16 September 2026). Last verified 17 September 2026. See the UPI MDR 2026 reference for the full schedule.

RuPay credit cards sit outside that zero-MDR prescription. NPCI’s enablement allowed a cardholder to link a RuPay credit card to a UPI handle and authorise UPI-shaped flows funded from the credit-card account. The user experience is indistinguishable from regular UPI — a QR scan, a UPI app authorisation, a clean acknowledgement. Underneath, the funding leg is a credit-card transaction. The interchange schedule that came with the enablement establishes the cost structure that matters for reconciliation: zero at or below ₹2,000, and approximately 2% above ₹2,000 — with the split allocating roughly 1.5% to the issuing bank and 0.5% to the network and acquirer.

There is no consumer surcharge. The cost falls entirely on the merchant. And in the gateway feed, the transaction often appears under a generic UPI bucket — sometimes with a sub-instrument code that distinguishes it (CCoUPI, UPI-CC, or a RuPay-credit tag), sometimes with the distinction collapsed at the dashboard level even when it exists in the raw file. That collapse is where the leakage lives.

Where does the leakage hide on a real settlement file?

Three structural places.

First, the dashboard view. Almost every Indian payment aggregator presents an instrument-mix donut on the merchant dashboard. UPI is a single slice. If the underlying API or raw CSV carries a sub-instrument column, the dashboard often does not surface it. The CFO sees “UPI: 65%” and treats it as zero-MDR. The raw file, queried at the lowest grain, shows the 65% decomposing into bank-account UPI and RuPay-credit-on-UPI in proportions the finance team has never quantified.

Second, the settlement journal mapping. Most ERP and accounting integrations map “UPI” to a single GL account. When the gateway reports a fee against UPI volume that should have been zero, the variance is closed as “gateway charge” or “settlement adjustment” and posted as expense without the sub-instrument provenance. The audit trail loses the information needed to renegotiate or to flag misclassification.

Third, the contracted rate sheet. Many merchant agreements still reflect the pre-October-2022 understanding that UPI is one instrument with one rate (zero). When the aggregator’s billing logic switches to apply the RuPay-credit-on-UPI interchange to volume the merchant believed was zero-MDR, there is no contract clause to point to in dispute. The agreement needs an explicit RuPay-credit-on-UPI sub-instrument carve-out with the ₹2,000 threshold and the ~2% above-threshold rate stated in writing.

The Razorpay published rate card, for instance, footnotes a 2.15% platform fee on RuPay-credit-on-UPI volume. PayU and Cashfree carry similar carve-outs. PhonePe PG publishes a single blended Standard Plan headline; the per-instrument rate has to be confirmed via the Business Dashboard quote. None of this is hidden in a contractual sense. It is hidden only in the operational sense — in the gap between what the merchant assumed “UPI” meant and what the gateway is actually billing.

How does the cost compare across UPI sub-instruments?

Three UPI sub-instruments, three cost profiles.

Bank-account UPI (P2M) carried zero network MDR from January 2020. From 15 October 2026 it stays zero at or below ₹2,000, carries 0.4% above ₹2,000, and is capped at ₹300 per transaction at or above ₹75,000; UPI AutoPay mandates are exempt (NPCI FAQ dated 15 September 2026, Q22). The notified framework is currently subject to a pending Supreme Court challenge (PIL filed 16 September 2026). The merchant may also pay the gateway a platform fee — a Razorpay or PayU subscription-style fee, a Cashfree promotional rate, a PhonePe blended quote — which is a separate line from the network MDR. Important to keep these straight in the chart of accounts: network MDR and gateway platform fee are economically distinct. The former is the regulated/contracted instrument cost. The latter is the gateway’s commercial charge for orchestration, settlement, dispute handling, and feature stack.

PPI or wallet-on-UPI carries no interchange at or below ₹2,000 and an NPCI-published interchange of 0.5%–1.1% above ₹2,000 (the wallet-interoperability circular of 24 March 2023). A 15-basis-point wallet-loading fee on volumes above ₹2,000 sits with the PPI issuer, not the merchant.

RuPay credit on UPI carries the ~2% above-₹2,000 interchange that this article is structured around. Below ₹2,000 it is zero. Above ₹2,000 it is roughly 2%, split issuer-network-acquirer as described.

For an OTT subscription business with a ₹2,499 ARPU plan, every transaction sits above the ₹2,000 threshold. The mix question — what share of the “UPI” line is bank-account versus RuPay-credit versus wallet — is therefore not a curiosity. It is a direct determinant of contribution margin.

Worked example: an OTT business with a ₹2,499 plan

A Bengaluru OTT video subscription business runs 40,000 active subscribers on a ₹2,499 monthly plan. Monthly gross merchandise value is ₹9.99 crore (40,000 × ₹2,499 = ₹9.996 crore, rounded ₹9.99 Cr). The instrument mix on the gateway dashboard reads as follows: UPI 65%, credit/debit cards 28%, net banking 5%, wallets 2%.

The 65% UPI line is what the finance team needs to decompose. Suppose the underlying raw settlement file, when queried at sub-instrument granularity, shows bank-account UPI at 95% of the UPI bucket and RuPay credit on UPI at 5%.

RuPay-credit-on-UPI volume: ₹9.99 Cr × 65% × 5% = ₹32.47 lakh.

Above ₹2,000 ticket: ~100% of this volume, because every subscription transaction is ₹2,499.

MDR at 2%: ₹32.47 lakh × 2% = ₹64,935 per month.

Annual: ₹64,935 × 12 = ₹7.79 lakh.

That is the cost the business is bearing — accurately — on RuPay-credit-on-UPI volume in a clean billing scenario.

Now the leakage layer. Suppose the gateway, on this account, bills the entire UPI line at a “UPI flat” 2.15% rate that the finance team never questioned because they assumed it applied only to a tiny sliver of non-zero-MDR sub-volume. In fact it applies to the entire RuPay-credit-on-UPI bucket at 2.15% rather than the 2% interchange basis: ₹32.47 lakh × 2.15% = ₹69,805 per month. The difference is ₹69,805 − ₹64,935 = ₹4,870 per month, or ₹58,440 annually. This is the additional leakage masquerading inside the UPI line. It is small per month and meaningful in aggregate. It compounds with any RuPay-credit-on-UPI mix growth and with any future change in the interchange split.

What the worked example illustrates is not a single magnitude. It is the structure of the question. The CFO needs to know three things every month: (1) what share of UPI volume was bank-account UPI, and in which ticket band, (2) what share was RuPay credit on UPI (zero at or below ₹2,000, ~2% above), (3) what the gateway billed on each share. Without that decomposition, the contribution-margin calculation on the subscription business is wrong by a structural amount.

From 15 October 2026 the bank-account share in this example is no longer free. Every transaction is ₹2,499, so it sits in the 0.4% band. The bank-account UPI share is ₹9.99 Cr × 65% × 95% = ₹6.17 crore a month; at 0.4% that is about ₹2.47 lakh a month in notified MDR (roughly ₹10 per transaction, well below the ₹300 cap), plus 18% GST on the fee. The exception is collection method: the NPCI FAQ (Q22) names OTT subscriptions among the UPI AutoPay flows that carry no prescribed MDR. A subscription business that collects renewals through UPI AutoPay mandates keeps that share at zero; one that collects through one-time UPI payments each month pays 0.4%. Which way the renewals are collected is now a cost decision worth checking. The RuPay-credit-on-UPI figures above are unchanged. The notified framework is currently subject to a pending Supreme Court challenge (PIL filed 16 September 2026).

Reconciliation discipline: how do you split UPI by sub-instrument?

Five operational steps.

Step one — pull settlement files at the lowest available grain. Most aggregators expose a per-transaction CSV or API endpoint that carries the instrument and sub-instrument tag, the gross, the fee, the GST, the net, the bank reference and the timestamp. The dashboard view almost always collapses sub-instrument detail; the raw file usually does not. NPCI publishes circular and sub-instrument schemas at npci.org.in that define the canonical instrument codes — your engineering team should map the gateway’s sub-instrument tag to those canonical codes once and lock the mapping in a versioned table.

Step two — split the UPI bucket into three sub-buckets. Bank-account UPI (expected network MDR from 15 October 2026: 0% at or below ₹2,000, 0.4% above, capped at ₹300 at or above ₹75,000, UPI AutoPay mandates exempt). RuPay credit on UPI (expected interchange 0% at or below ₹2,000; ~2% above). PPI/wallet on UPI (expected interchange 0% at or below ₹2,000; 0.5%–1.1% above). Every UPI transaction must resolve to exactly one of these three; if the sub-instrument tag is missing, flag the transaction for manual review rather than defaulting it to bank-account UPI.

Step three — compute expected interchange per transaction. For each above-₹2,000 RuPay-credit-on-UPI transaction, expected interchange equals gross × 2%. For each above-₹2,000 PPI/wallet transaction, expected interchange equals gross × the contracted PPI rate in the 0.5%–1.1% band. For bank-account UPI, expected network MDR from 15 October 2026 is zero at or below ₹2,000, 0.4% of gross above ₹2,000, and at most ₹300 per transaction at or above ₹75,000 — zero for any ticket settled through a UPI AutoPay mandate, and zero for all tickets before 15 October 2026. The gateway’s platform fee — distinct from interchange — is a separate column carried alongside expected interchange, not folded into it.

Step four — compare to the actual fee column. Variance by sub-instrument and by day. Any non-zero MDR on bank-account UPI at or below ₹2,000, or above the notified 0.4% / ₹300-cap schedule on larger tickets, is the single most important flag — it indicates either misclassification at the gateway or a billing error at the aggregator. Any RuPay-credit-on-UPI fee that exceeds 2% of gross indicates a gateway platform-fee uplift that needs to be reconciled to contract. Any GST line that exceeds 18% of the fee component (not 18% of transaction value) indicates a posting error.

Step five — close the loop on contract. The merchant agreement needs an explicit RuPay-credit-on-UPI clause with the ₹2,000 threshold and the ~2% above-threshold rate stated. The aggregator’s monthly tax invoice needs to reconcile against the per-transaction GST totals so the input-tax-credit chain is intact under Rule 36(4). The chart of accounts needs three UPI sub-accounts so the GL itself preserves the distinction.

Done with discipline, this is what separates a finance team that knows its contribution margin from a finance team that thinks “UPI” is one thing.

How does TDS Section 393 sit on top of this?

Where the OTT business is selling through a third-party operator (an app-store, a streaming aggregator, a bundling distributor), the operator deducts TDS at 0.1% on gross under Section 393(1) Sl. 8(v) payment code 1035 of the Income-tax Act 2025. The rate was 1% under the pre-October-2024 Section 194O regime; it was reduced to 0.1% effective 1 October 2024 and migrated to the new section/code structure under the 2025 Act.

The 0.1% TDS is layered on top of, and entirely separate from, gateway MDR. GST 18% applies to the MDR/platform fee component only — never to the transaction value. So a ₹2,499 subscription transaction routed through an aggregator and funded from a RuPay credit card on UPI carries four distinct fee components on the settlement file: (a) RuPay-credit-on-UPI interchange at ~2% on gross (because ticket is above ₹2,000), (b) the gateway’s platform fee per the agreement, (c) GST at 18% applied to (a) + (b) — the fee components only, (d) TDS at 0.1% deducted by the operator under code 1035 and reconciling to Form 26AS at year end.

Folding any two of these into a single blended “settlement charge” line breaks one of the reconciliation paths — the ITC chain, the 26AS reconciliation, or the gateway dispute window. The discipline is to keep all four on separate columns from the moment the settlement file is ingested.

What does the ledger entry actually look like?

For a single ₹2,499 OTT subscription transaction funded from a RuPay credit card on UPI, the clean journal looks like this. Debit Bank (settlement account) ₹2,381.12. Debit MDR/Interchange — RuPay-credit-on-UPI ₹49.98 (₹2,499 × 2%). Debit GST Input — on MDR ₹8.997 (₹49.98 × 18%). Debit Gateway Platform Fee — RuPay-credit-on-UPI ₹0 in this scenario (folded into interchange for illustration; in practice the gateway’s commercial line sits on its own column). Debit TDS Receivable — Code 1035 ₹2.499 (₹2,499 × 0.1%, applicable only where an aggregator/operator deducts). Credit Subscription Revenue ₹2,499. Add GST output on revenue per the merchant’s GST structure. The point is that the entry resolves to five distinct columns, not one. A merchant that posts a single “Net settlement: ₹2,381.12” line to revenue contra is collapsing the entire reconciliation chain — there is no audit basis later for GST input-tax-credit on the MDR, no Form 26AS reconciliation on the TDS, no contract-dispute basis on the interchange, no margin variance analysis by sub-instrument.

For aggregated daily settlement reporting, the chart of accounts should carry at minimum: UPI bank-account ≤ ₹2,000 (zero-MDR), UPI bank-account > ₹2,000 (0.4%, capped at ₹300 per transaction), UPI RuPay-credit ≤ ₹2,000, UPI RuPay-credit > ₹2,000 (the ~2% bucket), UPI PPI/wallet ≤ ₹2,000, UPI PPI/wallet > ₹2,000, and the corresponding MDR sub-accounts in expenses. This is not over-engineering. It is the granularity at which the leakage is observable and the policy at which the contract is renegotiable.

How do gateways differ on the RuPay-credit-on-UPI line?

Three operational variations the finance team should expect.

Razorpay’s published pricing footnotes a 2.15% platform fee on RuPay-credit-on-UPI volume — the 0.15-point uplift above the ~2% interchange is the gateway’s commercial margin. Enterprise contracts negotiated at ₹1 Cr-plus monthly GMV often reduce this to a tighter band; the contract must state the sub-instrument and the threshold explicitly.

PayU’s published 2% flat blends multiple instruments; the RuPay-credit-on-UPI line is typically billed at the premium-instrument 3% slab in the standard footnote unless the contract carves out a specific RuPay-credit-on-UPI rate. The merchant agreement must distinguish RuPay credit on UPI from generic premium credit-card volume.

Cashfree’s 10-year-anniversary promotional rate of 1.6% for new merchants signing between 18 September 2025 and 30 April 2026 — locked 12 months, up to ₹1 Cr monthly GTV — requires UPI to remain at least 40% of monthly GTV or the offer rescinds. The treatment of RuPay-credit-on-UPI within the “UPI” share for that 40% threshold is a contract-language question; the merchant should confirm in writing whether the promo’s UPI denominator includes or excludes RuPay-credit-on-UPI volume.

PhonePe PG publishes only a blended Standard Plan headline (currently struck-through “Free*” under a limited-time launch offer). The per-instrument rate is not publicly disclosed; the RuPay-credit-on-UPI rate must be confirmed via the Business Dashboard quote and read into the settlement reconciliation engine as a contracted rule.

In every case, the operational discipline is the same: contract-explicit, sub-instrument-tagged, threshold-aware. The gateway commercial differences are negotiable; the underlying NPCI interchange schedule is not.

What changed on 15 October 2026 — and why this discipline was the rehearsal

When this article was first written in June 2026, a tiered MDR on bank-account UPI was a proposal: the Parliamentary Standing Committee on Finance report (tabled 12 March 2026) and a Payments Council of India suggestion of 30 basis points above ₹20 lakh turnover. That scenario has since become law in a different shape. The Taxation and Other Laws (Amendment) Act 2026 (Presidential assent 17 August 2026) narrowed Section 10A of the Payment and Settlement Systems Act, and from 15 October 2026 bank-account UPI P2M carries 0.4% above ₹2,000, capped at ₹300 per transaction at or above ₹75,000, per the Ministry of Finance notification of 14 September 2026 and the NPCI FAQ dated 15 September 2026. Transactions at or below ₹2,000, UPI AutoPay mandates, and small merchants receiving no more than ₹1 lakh a month through UPI QR stay at zero; railways, telecom, insurance, fuel and utility bill collection pay a flat ₹5 above ₹2,000, education fee collections sit in the same designated category with “flat-fee structures or capped processing rates” per Q42 (no specific figure stated), and capital-markets flows pay 0.02% capped at ₹300. RuPay credit on UPI — the subject of this article — is explicitly outside the new MDR (Q36).

The operational point made in the original version holds, and is now concrete rather than hypothetical: a finance team that already splits the “UPI” line by sub-instrument and ticket size only has to change the expected rate on one bucket. A team that treats “UPI” as one zero-cost line now has two problems to untangle at once. The notified framework, effective 15 October 2026, is currently subject to a pending Supreme Court challenge (PIL filed 16 September 2026). Last verified 17 September 2026. The full schedule and a six-check reconciliation playbook are in the UPI MDR 2026 reference.

Continue reading in this cluster

• UPI MDR 2026 — the notified schedule effective 15 October 2026 — the current-state bank-account UPI schedule, sector carve-outs and the six-check reconciliation playbook.
• Platform fee leakage on Razorpay, PayU, Cashfree — the per-transaction fee-column audit playbook for D2C and subscription businesses.
• MDR fee reconciliation across instruments — the operative reconciliation logic for splitting MDR by instrument and surfacing variance against contract.
• Razorpay settlement reconciliation — the Razorpay-specific settlement file mapping and journal-entry discipline.
• Cluster hub: Merchant fees & MDR leakage
• Money page: Payment gateway reconciliation