UPI Through Credit Card vs Bank Account: Charges & Tax Impact

Customers can make UPI transactions from a linked bank account or, where available, a RuPay credit card. For merchants and finance teams, the real-world question is whether the payment source affects charges, GST treatment or income-tax reporting. The underlying sale is taxed the same way in both cases, but the charges on the payment source and the settlement treatment could differ.

This distinction is important, as a credit card UPI transaction represents a credit, whereas a bank account UPI payment is funded directly from the customer’s account. Merchants should therefore assess their payment agreements and settlement statements rather than assuming that both routes have the same cost.

How the Two Routes Work

A UPI payment from a bank account debits the customer’s savings or current account and credits the merchant with the UPI system. A UPI payment from a RuPay credit card spends the customer’s credit limit on the card. The customer repays the card issuer later, subject to his card agreement.

NPCI’s RuPay Credit Card on UPI product lets a customer link his RuPay credit card to pay a merchant by scanning a UPI QR code and authenticating with a UPI PIN. NPCI also says that credit-card UPI payments are for merchant payments and are not permitted for categories like person-to-person transfer, cash withdrawal, mutual funds, IPO and certain others.

For a merchant, the customer’s payment source doesn’t affect the invoice value or the GST treatment of the sale. The merchant should recognise the full sale value and charge GST where applicable on the underlying supply.

Charges and MDR

A bank-account UPI payment and a credit-card UPI payment can have different merchant-side cost arrangements. MDR is a fee charged to a merchant for accepting a payment, which depends on the payment instrument, merchant category, and acquiring arrangement.

Under the UPI MDR framework effective from 15 October 2026, specific person-to-merchant UPI transactions above ₹2,000 may incur a MDR at 0.4%. Additionally, the MDR for person-to-merchant UPI transactions of ₹75,000 or more will be capped at ₹300 per transaction. Certain notified categories may have a flat ₹5 MDR above ₹2,000. Eligible small merchants under the applicable P2PM framework may continue to enjoy zero MDR. Credit-linked UPI products, such as RuPay credit cards, will be governed by credit-network terms.

A uniform rate for MDR for all credit card UPI payments cannot be specified since the applicable rate depends on the category and acquiring arrangement. Merchants must verify the exact charge with their acquiring banks or aggregators and must not presume a credit card UPI payment carries the same MDR as a bank account UPI payment.

GST and Accounting Treatment

A GST does not apply because the customer has paid by UPI. GST applies to a taxable supply of goods or services. If a registered business sells goods worth ₹10,000 and GST and receives the money in UPI, the GST will apply to the taxable supply regardless of whether the customer has paid by a bank account or a credit card.

If the payment aggregator charges MDR or other fees, GST may apply to these. A registered merchant can claim a credit for GST charged on such a fee, provided the statutory conditions are met, such as a valid tax invoice and receipt of service, business use, etc.

For accounting, the revenue should be recorded on the gross invoice value. If a customer pays ₹10,000, but the payment provider deducts ₹40 for MDR, then ₹10,000 should be accounted for as sales and ₹40 should be accounted for as a payment-processing charge. The GST charged on the MDR invoice should be accounted for separately and subject to eligibility for input tax credit.

Income Tax and Compliance Points

In terms of income tax, the receipts from the sale of goods and services through UPI would form part of business receipts, whether collected through a bank account or credit card.

However, it may not represent turnover in all cases. Payments received through UPI should be examined to identify loans, capital contributions, advances, transfers, repayments, and refunds, and these should be segregated.

The merchants should also reconcile the UPI reference numbers with sales, bank credits, payment-aggregator settlements and GST returns to identify sales that may not have been recorded and refund credits, duplicate credits and MDR charges.

Conclusion

A sale through UPI using a credit card or a bank account will have no bearing on the GST or income tax liability. The difference will be in the customer’s payment method and the merchant’s processing charges. The merchants must check their MDR terms and ensure that the settlement process is transparent and that the fees are accounted separately.

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