Fees, Price Drivers and 2026 Rules
GST on MDR, payment gateway fees and POS rental: rate, invoices and input tax credit
How GST applies to card MDR, UPI MDR, gateway charges and terminal or soundbox rentals in India, how to claim input tax credit, and the TDS question accountants ask.
GST is charged on what you pay to accept digital payments: MDR on cards, any UPI MDR once it starts, payment gateway fees, device rentals, settlement and chargeback fees. Under the rates in force in October 2026 these are taxed at 18%. A registered business can usually claim this GST as input tax credit (ITC), provided the invoice or statement carries your GSTIN and the supplier has reported it, so the real cost of GST is often close to zero for a GST-registered merchant. An unregistered small merchant bears the full 18%. Where no fee is charged, as on RuPay debit cards and UPI up to ₹2,000, there is nothing to tax. This guide explains how it works and what to check. It belongs to the fees overview.
What is taxed
| Charge | GST? | Notes |
|---|---|---|
| Card MDR | Yes, 18% | Charged by the acquirer on the MDR, not on your sale |
| UPI MDR (once implemented) | Expected to be taxed like other MDR | Confirm with your acquirer's rate card |
| PPI interchange passed on | Yes, as part of the fee you pay | |
| Payment gateway transaction fees | Yes, 18% | |
| Set-up, annual maintenance, minimum monthly fee | Yes, 18% | |
| Terminal or soundbox rental | Yes | Rental of equipment or a bundled service; rate as on the invoice |
| Instant settlement fee | Yes | |
| Chargeback or refund handling fee | Yes | |
| Zero-charge payments (RuPay debit, UPI up to ₹2,000) | No fee, so no GST | |
| Your own sale to the customer | Your normal GST on goods or services | Unchanged by payment method |
Worked example (illustrative)
A café takes ₹2,50,000 in card payments and ₹1,50,000 in UPI up to ₹2,000 in a month. Its acquirer charges 1.6% on cards and ₹400 rental for a terminal with built-in soundbox.
| Line | Base | GST 18% | Total |
|---|---|---|---|
| Card MDR: ₹2,50,000 × 1.6% | ₹4,000 | ₹720 | ₹4,720 |
| UPI up to ₹2,000 | ₹0 | ₹0 | ₹0 |
| Terminal rental | ₹400 | ₹72 | ₹472 |
| Total | ₹4,400 | ₹792 | ₹5,192 |
- If the café is GST-registered and the ITC is available, it claims ₹792 against its output GST; its net cost is ₹4,400.
- If it is not registered (or the café's supplies are under a scheme that does not allow ITC, such as composition), the cost is ₹5,192.
Enter the ₹792 of GST as "other charges" in the MDR fee calculator to see what reaches the bank.
Claiming input tax credit
For ITC to work, check:
- GSTIN on the invoice. Give your GSTIN to the acquirer or gateway at onboarding. Without it, the supplier may treat you as unregistered.
- Monthly tax invoice or statement. Banks and aggregators often issue a consolidated monthly invoice for fees. Download it each month.
- Reflects in your GSTR-2B. The supplier must report it. Reconcile monthly.
- Place of supply. The invoice should show the right state; a wrong state can lead to IGST instead of CGST + SGST or the reverse.
- Business use. Fees for business payments qualify; personal accounts do not.
- Blocked credits. Payment fees are not usually among blocked credits, but your accountant should confirm for your situation.
Gross or net: how to book the fee
Acquirers usually settle net: you receive sales minus MDR minus GST. For accounting, book the gross sale as revenue, and the MDR and GST as expenses (GST as ITC receivable if claimable). Booking only the net amount as sales understates your turnover, which matters for GST returns, income tax and thresholds such as the ₹50 crore rule on offering electronic modes (see zero charge and the ₹50 crore rule).
| Entry (illustrative, card sale of ₹10,000 at 1.6%) | Amount |
|---|---|
| Sales (gross) | ₹10,000 |
| MDR expense | ₹160 |
| GST on MDR (ITC, if claimable) | ₹28.80 |
| Bank receipt | ₹9,811.20 |
The TDS question
Accountants sometimes ask whether TDS must be deducted on MDR as "commission". Because the bank deducts MDR at source before settlement, the merchant has no opportunity to deduct TDS, and courts have generally treated MDR retained by banks as not being commission for TDS. Gateway or platform service fees billed separately may be treated differently. Since 1 April 2026 the TDS provisions are in the Income-tax Act, 2025 with new section numbers. Ask your chartered accountant before deciding.
Common GST mistakes
- Not giving your GSTIN to the acquirer, so fee invoices are issued without it.
- Ignoring monthly fee invoices and losing ITC because they were not reconciled within the time allowed.
- Booking net settlement as turnover.
- Paying GST on zero-charge payments. If your statement shows GST against RuPay debit or small UPI lines, there is a fee being charged that should not be; see zero charge.
- Treating rental as MDR. They may appear on different invoices.
FAQ
Does the customer pay GST on my MDR?
No. GST on MDR is charged to you by the acquirer. Your customer pays GST only on your goods or services.
I am not registered for GST. Can I avoid the 18%?
No. Unregistered businesses pay the GST as part of the fee and cannot claim it back.
Is GST charged on the UPI MDR?
Expect it to be, as with other MDR. Check the rate card your acquirer issues when NPCI's framework starts.
Do foreign gateways charge GST?
If you buy services from a supplier outside India, reverse charge may apply. Ask your accountant.
Sources
- CBIC GST — GST rates and notifications for financial services
- GST portal — GSTR-2B and return filing
- Income Tax Department — TDS provisions under the Income-tax Act, 2025
- Reserve Bank of India — payment aggregator and card rules
