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What a Payment Gateway Settlement Is
A payment gateway settlement is the process by which a payment aggregator — Razorpay, PayU, Cashfree, or a marketplace like Amazon Pay — collects payments from customers on behalf of a merchant, aggregates them into a settlement batch, deducts its charges, and transfers the net amount to the merchant’s bank account via NEFT.
From the merchant’s perspective, the settlement appears as a single NEFT credit in the bank account. That credit represents the sum of hundreds or thousands of individual customer transactions, reduced by MDR, GST on MDR, any refunds processed in the period, chargeback recoveries, and — for marketplace sellers — TCS deducted under GST. Without the gateway’s settlement file, a merchant cannot determine which orders constitute that bank credit.
The RBI regulates payment aggregators and prescribes maximum settlement timelines: for domestic merchants, next-business-day (T+1) settlement for low-risk categories, with T+3 permissible for others. Individual gateways and merchant agreements often set timelines within this ceiling.
How Settlement Works
Transaction Capture and Batching
When a customer completes a payment, the gateway captures the transaction and records it in the merchant’s settlement ledger. At end of day (or at configured batch intervals), the gateway groups all captured transactions into a settlement batch. The batch total is the gross merchant receivable before deductions.
Deductions Before Settlement
The gateway deducts the following before computing the net settlement amount:
- MDR — percentage-based processing fee per transaction (rate varies by payment method)
- GST on MDR — 18% GST levied on the MDR amount (input-eligible for registered merchants)
- Platform fees — fixed monthly or per-transaction fees charged by the gateway
- Refunds — customer refunds processed against the merchant’s account are deducted from the next settlement batch
- Chargebacks — disputed transactions where the card network reverses the charge; deducted from settlement until resolved
- TCS — 1% of net order value deducted by marketplace operators under Section 52 of GST (applies to Amazon, Flipkart, Meesho sellers only)
Net Settlement Transfer
After deductions, the gateway initiates an NEFT transfer of the net settlement amount to the merchant’s registered bank account. The NEFT carries a UTR, which becomes the primary identifier for matching this credit in the bank reconciliation. The gateway also generates a settlement file — the transaction-level detail supporting the single NEFT credit.
Settlement Timelines by Gateway
| Gateway | Standard Settlement Cycle | Notes |
|---|---|---|
| Razorpay | T+2 working days | T+1 available for established merchants |
| PayU | T+3 working days | T+2 for select merchant categories |
| Cashfree | T+2 working days | Instant settlement product available at additional cost |
| Amazon Pay | T+7 calendar days | Marketplace settlement includes TCS deduction |
| Stripe India | T+2 working days | International card transactions may take longer |
The Settlement File and Reconciliation
The settlement file is the document that makes reconciliation possible. Without it, the merchant sees only a single NEFT credit amount — ₹4,82,316 — with no breakdown of which 340 orders it represents, what MDR was deducted, which refunds were netted, or what TCS the marketplace retained.
A standard settlement file contains: Order ID, Payment ID, Transaction date, Gross amount, MDR amount, GST on MDR, Refund amount (if any), Net settlement amount per transaction, and Settlement batch ID. The batch ID links individual transaction rows to the single NEFT credit in the bank statement.
Reconciliation proceeds in two stages: first, match the NEFT bank credit to the settlement batch by settlement ID and net amount; second, match each transaction in the settlement file to the corresponding order in the order management system by Order ID. Any orders present in the OMS but absent from the settlement file — or vice versa — form the exception queue for manual review.
For merchants processing more than 1,000 transactions per month across multiple payment gateways, manual settlement reconciliation is the primary source of month-end close delays. Structured payment gateway reconciliation tooling handles multi-gateway settlement file ingestion and order-level matching automatically; the reconciliation infrastructure requirements are covered in detail under reconciliation software India.