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A business sees its bank credits are lower than its sales and does not understand what MDR is, how much it takes, or how it differs by payment mode.
MDR is a fee per payment, a percentage or flat amount, kept before settlement. It varies by mode, card type and agreement, and GST at 18 percent is added on top of it.
The gateway agreement listing MDR by payment mode, the settlement report with fee and GST columns, and the gateway's monthly tax invoice.
The business knows its MDR per mode, can recompute the fee on any payment, and books MDR as an expense and the GST on it as input tax credit.
MDR, short for merchant discount rate, is the percentage or flat amount a payment gateway or bank keeps from each payment you accept. It is taken before the money reaches you. That is why the credit in your bank is always a little lower than what the customer paid, even when nothing has gone wrong.
Is MDR the same for UPI, debit cards, credit cards and net banking?
No. Each payment mode has its own rate, and different parties set it.
| Payment mode | Who sets the rate | What to know |
|---|---|---|
| UPI from a bank account | Framework notified by NPCI and the regulator | New P2M charges (0.4 percent above ₹2,000, capped at ₹300, with sector carve-outs) apply once the new charges start; NPCI has postponed the start to after Diwali 2026 |
| RuPay debit card | Regulatory framework | Low or nil for many merchants; check your agreement |
| Other debit cards | Card network rules and gateway pricing | Usually below credit card rates |
| Credit cards | Card network and gateway, often negotiated | Higher; premium, corporate and international cards cost more |
| Net banking | Gateway and bank, negotiated | Often a percentage or a flat fee per payment |
| Wallets, EMI, pay later | Gateway, negotiated | Varies widely |
On UPI: the “person-to-merchant” (P2M) charges are new. The rates are unchanged, but NPCI announced on 13 October 2026 that the start has moved to after Diwali, with the exact date to be notified. A Supreme Court challenge is still pending; the Court refused to pause the charges on 28 September 2026. Separately, a gateway may charge its own platform fee on UPI. See the UPI MDR guide for detail.
How is MDR worked out on a payment?
MDR is usually a percentage of the payment amount. Some modes use a flat fee per payment instead. GST at 18 percent is then added on top of the MDR, and both are deducted before settlement.
Worked example: a ₹10,000 card payment
A customer pays ₹10,000 by credit card. The shop’s illustrative MDR is 2 percent (your contracted rate may be different).
| Step | Amount |
|---|---|
| Customer pays | ₹10,000 |
| MDR at 2 percent | ₹200 |
| GST at 18 percent on ₹200 | ₹36 |
| Credited to your bank (₹10,000 − ₹200 − ₹36) | ₹9,764 |
If the same shop takes ₹5,00,000 a month on cards at that rate, MDR is ₹10,000 and GST on it ₹1,800. The ₹10,000 is a business expense. The ₹1,800 is usually claimable as input tax credit, so the real cost is the ₹10,000.
Where do I see MDR on my settlement report, and is it shown with or without GST?
Most settlement reports have a fee column and a separate tax column for each payment. Some show one combined “fee including tax” figure; others show only a daily total. Read the column headings carefully. Then check:
- Pick five payments of different modes.
- Multiply each amount by your agreed rate for that mode.
- Add 18 percent GST.
- Compare with the report. A small gap from rounding is normal; a consistent gap is worth raising.
How should I book MDR in Tally or Zoho Books?
Book the gross sale as revenue. Book MDR to an expense ledger such as “Payment gateway charges” and the GST to your input tax ledger. Do not book only the net settlement as sales; that understates revenue and hides the fee.
What would the new UPI charge look like on a payment?
Once the new charges start, a ₹2,500 UPI payment to a merchant at 0.4 percent would carry a ₹10 charge. A ₹1,00,000 UPI payment would work out to ₹400 at 0.4 percent, but the cap of ₹300 means the charge stops at ₹300. A ₹1,500 payment is below the ₹2,000 line and is not covered by the new charge. Sector carve-outs can change this for some merchants, so check the UPI MDR guide.
What to read next
- What is inside MDR? Interchange, network fee and gateway margin
- MDR fee reconciliation: checking each fee line against the agreed rate.
- Platform settlement glossary
- Payment gateway reconciliation
Payment-gateway settlement reconciliation is on the TransactIG roadmap.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →