Big Update For UPI Users: New Transaction Rule Effective From February 15

The National Payments Corporation of India (NPCI) has introduced a new instruction regarding UPI transactions, specifically related to auto acceptance and rejection of chargebacks, effective February 15, 2025. These changes will be implemented on the basis of Transaction Credit Confirmation (TCC) and returns, streamlining the process of handling disputed transactions.

Understanding TCC And Returns In UPI Transactions

TCC means the beneficiary bank has confirmed that a transferred amount has been successfully credited to the recipient's account, whereas returns refer to the process of refunding money to the recipient's account on an event of failed transaction or reversal request.

Role Of Chargeback In UPI Transactions

Chargebacks occur when a UPI deemed-approved transaction is reversed by the issuer, acquiring bank, or NPCI, before the beneficiary bank can fully process it. Since chargebacks often arise before the beneficiary bank gets a chance to verify and process a return, it creates a challenge in managing disputes effectively.

Chargebacks typically occur when

The customer does not recognise the payment
A customer dispute with bank regarding the transaction
A customer being charged for undelivered items
A sale error, such as charging twice for same product
A merchant making duplicate charge for the same transaction
Difference between chargeback and refund
Although chargebacks and refunds may sound similar, there is a key difference. A refund is initiated by the merchant or service provider on receiving a request from customer. However, a chargeback requires the customer to raise the issue with the bank, which then investigates and processes the claim.

Current Challenges With Chargebacks

Currently, chargebacks can be raised on the same day a transaction occurs. However, since beneficiary banks do not always have enough time to verify and process returns proactively, many disputes often escalate into chargebacks.
Because of this, some banks have raised requests for refund without first checking whether a chargeback had already been initiated. In such cases, the chargeback is automatically closed on a deemed acceptance basis, which often lead to penalties from the Reserve Bank of India (RBI).

How The New NPCI Rule Resolves Chargeback Issue ?

The updated rule will ensure that the beneficiary bank will automatically accept or reject a chargeback based on the TCC or returns raised in the following settlement cycle after a chargeback is initiated. The beneficiary bank's move to raise a TCC or returns will determine whether a chargeback is accepted or rejected, eliminating the need for manual intervention.

Notably, the new UPI chargeback rule will come into effect for bulk upload option, and Unified Dispute and Issue Resolution (UDIR), but not in front end option, meaning that it will not be directly visible to customers in banking apps.

Example Of Current Chargeback Handling

For instance, 7,601 chargebacks were received during December 2024 by Yes Bank related to PhonePe transactions. Of this, 7,397 chargebacks were accepted by the bank during the same month. The difference between the received and accepted chargebacks is considered as re-presentment, which involves submitting evidence to the bank proving that a transaction was valid, discrediting the cardholder's claim.