Industrial marketplace Pneucons disables UPI on orders from Oct 10, co-founder says ‘MDR ate 94% of our margins’

Ahmedabad-based industrial marketplace Pneucons has decided to stop accepting UPI payments from October 10, with its co-founder saying the imposition of merchant discount rate (MDR) on specified online transactions would significantly squeeze the company's margins.

“After thoughtful consideration we have decided to disable UPI going forward from 10th Oct,” Pritesh Lakhani, co-founder of Pneucons, said on X.

The development comes after the government announced last month that a 0.4% MDR charge will apply on each person-to-merchant UPI transfer above ₹2,000, with effect from 15 October 2026. However, person-to-person UPI transfers and small merchant payments will continue to remain free.

How UPI MDR would hit Pneucons' margin?

According to the social media post, Pneucons earns a 0.5% commission on the value of an order before tax. For a ₹10,000 order, this means the company earns ₹50 as its commission.

However, from October 15, UPI MDR of 0.4% would be charged on the total amount paid by the customer, including GST, Lakhani said. On a ₹10,000 order with 18% GST, the customer pays ₹11,800.

At a 0.4% MDR, the UPI charge on ₹11,800 works out to ₹47.20. This leaves the company with only ₹2.80 from its original ₹50 commission. In other words, Lakhani said that the merchant charge on UPI payments would eat up 94% of Pneucons’ margin on every UPI order above ₹2,000.

MDR applies to GST too?

The company's co-founder also said that the impact of this imposition will be higher because the company earns its commission on the pre-GST order value of ₹10,000 but pays MDR on the GST-inclusive amount of ₹11,800. This effectively adds ₹7.20 to the MDR cost on the order.

Lakhani also mentioned that GST of 18% is levied on the ₹47.20 MDR, adding another ₹8.50 to the payment cost. “The ₹8.50 GST on MDR is claimable, but it's paid upfront. That's working capital stuck on every order,” he added.

Government sources told news agency ANI earlier, “There is no separate GST on MDR.” However, they clarified that GST would apply to applicable MDR charges, with businesses eligible for credits.

How will MDR charges be rolled out in India?

Under the new framework, an MDR of 0.4% will apply to specified merchant transactions above ₹2,000. For transactions of ₹75,000 and above, the charge will be capped at ₹300 per transaction.

The additional charge is not payable by consumers. Instead, merchants have to bear the MDR, with the government directing banks to ensure that the cost is not passed on to customers in any way.

Additionally, transactions above ₹2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 per transaction.

A separate, much lower MDR of 0.02% will apply to capital-market-related UPI payments, also capped at ₹300 per transaction. This category includes transactions involving mutual funds, securities, stock brokers and dealers.

Which merchants do not have to pay MDR?

Street vendors and eligible neighbourhood shops will continue receiving payments without MDR. This covers small merchants who receive up to ₹1 lakh per month via UPI QR codes.

They must fall under the specified Person-to-Person-Merchant category to qualify for this exemption. All their transactions remain exempt under this category, helping protect smaller businesses from additional costs.