Introduction

October at Arora Furniture in Noida felt less like a showroom and more like a railway platform. Diwali was weeks away, and Vikram Arora moved between customers with the calm of a man who had survived twenty festive seasons.
At the billing counter, his nephew Kabir had one mission: get every customer to pay by UPI. “No counting notes, no fake notes, no trips to the bank,” he liked to say. When a young couple, Neha and Arjun, chose a ₹48,000 grey sofa, Neha scanned the QR code, the phone beeped, and that was that.

The Morning the Numbers Didn’t Add Up

On the first Monday of November, Vikram compared his UPI sales with his bank statement. He checked three times. ₹14,160 was missing.

“Did you give discounts I don’t know about?” he asked. Kabir scrolled through the settlement details and pointed at a column few people read. “There. MDR.”

A Toll on the Money Highway

MDR, the Merchant Discount Rate, is a small fee a business pays for accepting a digital payment. Think of it as a toll: banks and payment companies carry the customer’s money and keep a small share.
UPI had been free for merchants since January 2020. Under rules announced by NPCI on 15 September 2026, that changes on 15 October. Businesses will pay 0.4% on UPI payments above ₹2,000, capped at ₹300, which is reached at ₹75,000.

The catch is that once a payment crosses ₹2,000, the 0.4% applies to the whole amount, not just the excess. Neha’s sofa cost the shop ₹192. Banks then add 18% GST on the fee. Kabir counted about 200 UPI payments above ₹2,000 in October, averaging ₹15,000 each: ₹12,000 in MDR plus ₹2,160 in GST, totalling ₹14,160.

Not everyone is affected. Over 95% of merchant UPI payments are ₹2,000 or less, and these stay free, as do small merchants receiving up to ₹1 lakh a month through UPI QR codes. The ones who feel it are furniture and electronics stores, clinics, jewelers, and coaching centers.

The Tempting Shortcut

“Simple,” said Vikram. “We add a small UPI charge to the bill.” Kabir shook his head. The fee cannot be passed on to customers, who pay the listed price and nothing extra. Shops may slowly build the cost into prices, though on a ₹48,000 sofa it is under ₹200. “Free for the customer” does not always mean “free for everyone.”

Cash Is Not the Answer

At the traders’ association, someone suggested pushing customers back to cash. Kabir disagreed. Cards cost 1.5% to 2.5%, so UPI at 0.4% is still the cheapest digital option, and cash has costs too: someone must count it and carry it to the bank. The fee also helps keep a system handling 24.51 billion transactions a month safe from fraud; it is not a government tax. And if everyone returns to cash, fewer sales are recorded, which weakens a business’s case for a loan.

A Visit to Sector 18

Still, ₹14,160 a month bothered Vikram. Kabir searched online and one name kept appearing: Manthan Experts, a CA firm in Noida in Sector 18. The Chartered Accountant in Noida who met them said something unexpected: “You’re not actually losing ₹14,160.”

First, the GST. As a regular GST taxpayer, Vikram can claim the ₹2,160 back as input tax credit (ITC). There are conditions: the bank must issue a tax invoice with his GSTIN, the charge must appear in GSTR-2B, and it must be in his books. Composition dealers and unregistered businesses cannot claim it.

Second, income tax. MDR is an ordinary business expense, like bank charges, so it reduces taxable profit. A year of fees is ₹1,44,000; at about 25% tax, that saves roughly ₹36,000, bringing the real yearly cost to about ₹1,08,000 rather than ₹1,69,920.

“But only,” the CA added, “if your books are right.” Many businesses record only what lands in the bank, not the full sale, which wastes credits.

More Than One Problem Solved

The firm’s bookkeeping services in Noida would match every UPI
settlement to a sale, and their income tax consultant in Noida would
reflect the fee properly in next year’s ITR filing services in Noida.
The conversation widened to payroll services in Noida, company
registration in Noida, audit services in Noida, and, for Vikram’s
dream second showroom, business advisory and virtual CFO services in
Noida.

The Sticky Note on the Counter

Kabir stuck five lines beside the QR code. If you receive payments above
₹2,000, copy them before 15 October:

•      Check if the ₹1 lakh-a-month exemption applies to you.

•      Ask your bank for updated terms and your category’s
rate.

•      Count monthly UPI payments above ₹2,000 and estimate
the cost.

•      Register your GSTIN with your bank to support ITC
claims.

•      Record full sales, the fee and the GST separately in
your books.

At the end of November, Vikram looked at his bank statement again. The
numbers would never match his sales exactly again, but now he could read the
gap like a story: ₹192 from Neha’s sofa, a small slice to keep the network
safe, GST coming back next month, a deduction waiting at tax time.

Money that leaves a business always has a story. The trouble starts only
when nobody is reading it.

Conclusion

The introduction of MDR charges on certain UPI transactions highlights an important lesson for every business owner: understanding your finances is just as important as generating sales. By tracking payment settlements, claiming eligible GST input tax credits, and recording expenses accurately, businesses can manage these additional costs without disrupting their cash flow.

With the right financial guidance, even small transaction charges can be managed more effectively. Manthan Experts, a trusted CA firm in Noida, provides professional bookkeeping, accounting, GST compliance, income tax advisory, and virtual CFO services to help businesses maintain accurate financial records and make informed decisions.

If you need assistance with accounting, taxation, or business financial management, contact Manthan Experts at info@manthanexperts.com to discuss your requirements and discover how expert financial guidance can support your business growth.