UPI MDR Explained: Why Pneucons Says New Payment Charge Could Eat 94% Of Its Margins

Mumbai: Ahmedabad-based industrial marketplace Pneucons will stop accepting UPI payments from October 10, days before the new merchant discount rate framework takes effect. Co-founder Pritesh Lakhani said the charge could wipe out most of the company’s margins on UPI orders.

“After thoughtful consideration we have decided to disable UPI going forward from 10th Oct,” Lakhani said in a post on X.

Why is Pneucons disabling UPI?

From October 15, a 0.4 percent MDR will apply to specified person-to-merchant UPI transactions above Rs 2,000. Person-to-person transfers and eligible small merchant payments will remain free.

Pneucons earns a commission of only 0.5 per cent on the pre-tax value of an order. According to Lakhani, this makes the new payment charge difficult for the company to absorb.

How does MDR eat into margins?

Lakhani explained the impact using a Rs 10,000 order. At a 0.5 per cent commission, Pneucons earns Rs 50.

After adding 18 percent GST, the customer pays Rs 11,800. A 0.4 per cent MDR on this amount works out to Rs 47.20, leaving just Rs 2.80 from the company’s Rs 50 commission.

That means the MDR alone would consume around 94 per cent of Pneucons’ margin on such an order.

What about GST on MDR?

Lakhani said GST of 18 per cent on the Rs 47.20 MDR adds around Rs 8.50 to the upfront payment cost. While businesses can claim input tax credit, he said the amount remains blocked as working capital until claimed.

Who gets relief?

Under the framework, MDR is capped at Rs 300 for transactions of Rs 75,000 and above.

Essential and thin-margin sectors, including fuel, insurance, telecom, railways and agricultural inputs, will pay a flat Rs 5 on eligible transactions above Rs 2,000.

Small merchants receiving up to Rs 1 lakh monthly through eligible UPI QR payments will remain exempt from MDR.