New UPI rule on automated process of New Chargeback Process

New UPI rule on automated process of New Chargeback Process

• The update from the National Payments Corporation of India (NPCI) on the Unified Payments Interface (UPI) chargeback process is an important step toward improving efficiency in resolving disputes between remitting and beneficiary banks.
• With the introduction of an automated process for chargeback acceptance or rejection based on Transaction Compliance Code (TCC) and Returns (RET), the NPCI aims to resolve the issues faced by beneficiary banks due to premature chargeback closures.

Why This Change on UPI Chargeback Rules?

• Previously, chargebacks initiated on the same day (T+0) often resulted in automatic closures without giving beneficiary banks enough time to process returns (RET) or adjust TCC.
• This led to financial penalties imposed by the RBI and inefficiencies in dispute resolution. The new system aims to improve transaction reconciliation and reduce disputes.
• This update aims to automate the acceptance or rejection of chargebacks based on Transaction Credit Confirmation (TCC) and returns (RET) to improve reconciliation efficiency and prevent unwarranted penalties on beneficiary banks.
• While this update primarily affects banks and payment institutions, the broader impact will be felt in the form of improved dispute resolution and a reduction in financial penalties, which could ultimately benefit the overall Unified Payments Interface ecosystem.

Key highlights New UPI rule on automated process of New chargebacks Rules

1. Automatic Processing of New UPI Chargebacks Policy:

   • Chargebacks will now be automatically accepted or rejected in the next settlement cycle, based on Transaction Credit Confirmation or returns (RET) raised by the beneficiary bank.
   • This prevents premature chargeback closures and penalties that banks previously faced due to insufficient processing time.
   • The National Payments Corporation of India update introduces an automated system to decide whether chargebacks should be accepted or rejected, based on the next settlement cycle. This will ensure that chargebacks are not prematurely closed and that the necessary adjustments or returns by beneficiary banks are accounted for.
2. T+0 Chargebacks: Previously, remitting banks could initiate chargebacks on the same day a transaction occurred (T+0), often before the beneficiary banks had time to process returns or adjust TCC. This led to inefficiencies, with chargebacks being automatically closed and penalties being imposed on beneficiary banks by the RBI.

3. Scope of Application:

   • Applies only to bulk upload transactions and UPI Dispute Resolution Interface (UDIR).
   • Does not affect front-end dispute resolution options for individual users.
   • The National Payments Corporation of India (NPCI) has announced new rules for the UPI chargeback process, set to be implemented from February 15, 2025 which enhancing reconciliation efficiency for banks and reducing the occurrence of unresolved chargebacks.
   • Exclusions: The new process will only apply to bulk upload transactions and UPI Dispute Resolution (UDIR), excluding the front-end dispute option.

4. Impact on Banks New chargebacks Rules

• • Member banks are encouraged to raise correct Transaction Credit Confirmation (102/103) codes to avoid the chargeback lifecycle moving to pre-arbitration or arbitration stages, which could lead to further complications.
  • Remitting banks can still initiate chargebacks from T+0 onwards, but beneficiary banks will now have time to reconcile transactions before chargebacks are deemed accepted.
  • NPCI has advised UPI member banks to ensure correct Transaction Credit Confirmation (102/103) is raised to prevent unnecessary movement to pre-arbitration or arbitration.

Broader UPI Growth & Trends

• Unified Payments Interface transactions continue to rise sharply, with 16.99 billion transactions recorded in January 2025, reflecting the increasing reliance on digital payments in India. The streamlining of chargeback processing is expected to further enhance trust and efficiency in Unified Payments Interface transactions.

No GST on UPI Transactions Above INR 2,000—Govt. of india Clarification

• The Government of India, via the Ministry of Finance, has clearly stated that no GST is applicable on UPI payments, even if the amount exceeds INR 2,000. GST is only levied on the supply of goods or services, not on the payment method (like UPI, NEFT, RTGS, IMPS, etc.).
• This comes in response to viral misinformation circulating online, claiming that UPI transactions over ₹2,000 would attract GST. All digital payment modes are instruments of fund transfer and are not taxed under GST, regardless of the amount involved.
• GST Dept clarification is intended to prevent confusion, debunk rumors, and encourage digital transactions in line with India’s Digital Economy goals. So whether you pay INR 200 or INR 2 lakh via UPI or any other digital mode, there is no GST on the payment itself.

UPI from April 2026 – Big Change or Big Misconception?

• “UPI now needs mandatory 2‑factor authentication.” Not a new change UPI has always used 2‑factor authentication. Registered mobile device and UPI PIN. UPI payments will require an extra OTP/biometric authentication from April 1, 2026. “UPI will move beyond PIN, requiring additional authentication for every transaction.” As per the framework of the Reserve Bank of India and the National Payments Corporation of India: UPI already operates on 2-factor authentication (device binding + UPI PIN). There is no official blanket mandate (as of now) requiring OTP/biometric for every UPI transaction from April 1, 2026
• What about apps like Paytm | Google Pay | PhonePe?. They do not set rules independently; they strictly operate under RBI & NPCI guidelines. The UPI ecosystem is evolving, with a focus on risk-based / adaptive authentication, device-level verification enhancements, optional biometric layers, and stronger fraud detection systems. But these are incremental security upgrades, not a sudden overhaul.
• UPI ATM Withdrawals – A subtle shift. Some banks are including UPI-based ATM withdrawals in monthly free limits. Potentially leading to earlier charges. This is bank-specific, not a universal RBI rule. UPI is becoming safer, not more complicated. No drastic change from April 1, 2026. Be cautious of half-baked viral updates.