How does credit on UPI work, and what does a merchant pay for it?
By Kumar Shanu · Published · 6 min read
Not legal, tax or investment advice.
Credit on UPI means a UPI payment funded by borrowed money rather than your savings. There are two kinds: a RuPay credit card linked to your UPI app, allowed by RBI from June 2022, and a bank’s pre-sanctioned credit line, allowed by RBI’s circular of 4 September 2023. Both are for paying merchants, not for sending money to friends. Merchants pay a card-style MDR on them, except that small merchants pay nothing on RuPay credit card payments up to ₹2,000. The September 2026 UPI MDR framework leaves them out.
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What is credit on UPI?
When UPI launched, the money in every payment came from a savings or current account. RBI has since widened the list of “funding accounts” a UPI ID can draw on. RBI’s 2023 circular lists them: savings accounts, overdraft accounts, prepaid wallets and credit cards — and, from that circular, pre-sanctioned credit lines. Credit on UPI is the last two: the payer scans the same QR code and enters the same UPI PIN, but the bank lends the money and the customer repays it later.
How credit came to UPI
8 Jun 2022
Credit cards allowed
RBI proposes linking credit cards to UPI, “to start with Rupay credit cards”.
16 Feb 2023
First private bank
HDFC Bank becomes the first private sector bank on RuPay credit cards on UPI.
6 Apr 2023
Credit lines announced
RBI’s policy statement proposes pre-sanctioned bank credit lines on UPI.
4 Sep 2023
Credit line circular
RBI/2023-24/58 lets banks offer pre-sanctioned credit lines through UPI.
12 Feb 2025
Circular updated
Following RBI’s December 2024 policy statement; now addressed to scheduled commercial banks other than payments banks and RRBs.
15 Sep 2026
Kept out of UPI MDR
The new UPI MDR FAQs say credit-linked UPI follows separate credit product rules.
How does a RuPay credit card on UPI work?
RBI’s Statement on Developmental and Regulatory Policies of 8 June 2022 said: “it is proposed to allow linking of credit cards to UPI. To start with Rupay credit cards will be enabled with this facility.” RuPay is NPCI’s own card network, so the link could be built inside NPCI. By February 2023 public sector banks such as Punjab National Bank, Indian Bank and Union Bank of India were issuing UPI-enabled RuPay credit cards, and HDFC Bank became the first private sector bank to support them.
- Get a RuPay credit card from your bank (a new card, or a RuPay variant of your existing one).
- In a UPI app that supports it, add the card as a payment source and set a UPI PIN for it with the card details.
- At a merchant, scan the UPI QR code and choose the credit card as the source.
- Enter the card’s UPI PIN. The payment is charged to your card and appears on your card statement, with the card’s interest-free period and reward rules.
Two limits matter. It is for merchant payments only: you cannot use a credit card on UPI to send money to a person or to your own account. And the card’s credit limit, not your bank balance, sets how much you can spend. The new UPI Tap & Pay, launched on 10 September 2026, also supports RuPay credit cards on UPI.
Also readUPI MDR is coming back: what the 0.4% merchant fee is, and why it was deferredWhat is a pre-sanctioned credit line on UPI?
RBI’s circular RBI/2023-24/58 of 4 September 2023, issued under the Payment and Settlement Systems Act, allows “payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals” through UPI, with the customer’s prior consent. It is not a card: the bank approves a limit in advance — the circular leaves the credit limit, credit period and interest rate to each bank’s board-approved policy — and the customer draws on it by UPI.
It can suit people who have no credit card: a bank-approved limit that works at a UPI merchant QR. The February 2025 update to the circular followed RBI’s December 2024 policy statement and widened the circular to scheduled commercial banks other than payments banks and regional rural banks.
RuPay credit card vs credit line on UPI
| RuPay credit card on UPI | Credit line on UPI | |
|---|---|---|
| Allowed by RBI | June 2022 | September 2023 circular |
| Product | A credit card on the RuPay network | A pre-sanctioned bank loan limit |
| Who can issue | Card-issuing banks | Scheduled commercial banks (not payments banks or RRBs) |
| Terms set by | Card terms and conditions | The bank’s board-approved policy |
| Use | Merchant payments | Merchant payments |
| Consent | Linking the card in a UPI app | Customer’s prior consent |
What MDR does a merchant pay on credit on UPI?
This is where credit on UPI differs most from ordinary UPI. A UPI payment from a bank account has carried zero MDR since January 2020 (a 0.4% charge on larger merchant payments was announced in September 2026 and then deferred — see the UPI MDR news). A credit card payment is different: someone is lending money and taking the risk, and card payments have always carried a fee.
| Payment type | MDR the merchant pays |
|---|---|
| UPI from a bank account, up to ₹2,000 | Zero |
| UPI from a bank account, above ₹2,000 | Zero today; 0.4% (capped at ₹300) under the deferred September 2026 framework, with exemptions |
| RuPay credit card on UPI, up to ₹2,000, small merchant | Zero |
| RuPay credit card on UPI, other payments | Card-style MDR, set through the card network and the merchant’s acquirer |
| Credit line on UPI | Follows credit product rules, not the UPI MDR framework |
The zero-MDR carve-out for RuPay credit cards covers only small merchants and only payments up to ₹2,000. The September 2026 FAQs on UPI MDR are explicit that credit-linked payments sit outside the new 0.4% regime: “Because credit-linked transactions involve short-term loans funded by issuing banks, they follow standard credit card guidelines.” For comparison, the same FAQs put standard credit card MDRs at 1.5% to 2.5%.
What should merchants and users watch?
- Merchants: a UPI QR code can receive both bank-account and credit-card payments. Your acquirer’s settlement report shows which was which, and the MDR on each. If you are a small merchant, ask your acquirer how it applies the ₹2,000 carve-out.
- Merchants: do not add a surcharge for UPI. The September 2026 FAQs say MDR on UPI may not be passed on to customers.
- Users: credit on UPI is still credit. Interest, late fees and the effect on your credit score are the same as for any card or loan.
- Users: a UPI PIN on a credit card is as sensitive as your card PIN. Never share it, and never enter it to “receive” money.
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Frequently asked questions
Can I link any credit card to UPI?
RBI allowed credit cards on UPI in June 2022 “to start with Rupay credit cards”, and RuPay credit cards are the ones banks enable on UPI. Ask your bank whether your card can be linked.
Can I send money to a friend with a credit card on UPI?
No. Credit cards and credit lines on UPI are for paying merchants, not person-to-person transfers.
Is there MDR on RuPay credit card payments through UPI?
Yes, except for payments up to ₹2,000 at small merchants, which carry zero MDR. Other payments carry a card-style MDR. The September 2026 UPI MDR framework does not apply to credit-linked UPI.
What is a credit line on UPI?
A loan limit a scheduled commercial bank approves in advance, which you can spend through UPI with your consent. RBI allowed it in a circular dated 4 September 2023; the bank sets the limit, period and interest rate.
Sources
The primary texts this article was checked against, on 30 October 2026.
- RBI — Statement on Developmental and Regulatory Policies (8 June 2022)
- RBI — Operation of Pre-Sanctioned Credit Lines at Banks through UPI, RBI/2023-24/58 (4 September 2023, updated 12 February 2025)
- NPCI — FAQs: MDR on Select UPI (P2M) Transactions (15 September 2026), Q4 and Q36
- MediaNama — HDFC Bank RuPay credit card on UPI (February 2023)
- NPCI — UPI Tap & Pay and MyUPI launched at GFF 2026 (10 September 2026)
- PIB — UPI: Transforming India’s Payment Landscape (24 August 2026)
General information, not tax, legal or investment advice. Rules and products change: confirm the details for your business with your CA, your bank or the regulator.
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