Payment fees glossary
MDR (merchant discount rate)
The fee a business pays its bank or payment provider for accepting a card or UPI payment, usually a percentage of each payment. MDR stands for merchant discount rate. It is deducted before the money reaches you.
TDR (transaction discount rate)
A term some payment gateways use for the fee they deduct from each payment, usually a percentage, sometimes plus a fixed amount. It is often used to mean the same thing as MDR.
Platform fee
A fee a payment gateway charges for its own service on each payment. Gateways charge one on UPI payments too, even though bank-account UPI payments to merchants carry no MDR.
The official rule: No official statement found on whether a payment aggregator may charge merchants a separate platform/technology fee on UPI. Several gateways publish one (e.g. 0.5%–2%). The app uses each provider’s published fee and never assumes zero because MDR is zero.
Payment aggregator and payment gateway
A payment aggregator is a company, such as Razorpay, Cashfree or PayU, that accepts payments on behalf of businesses and pays the money on to them. In India, payment aggregators are authorised and regulated by the RBI. A payment gateway is the technology that carries the payment; in everyday use the two words mean the same thing.
Acquiring bank (acquirer)
The bank that accepts card or UPI payments on a business’s behalf and pays them into its account. The MDR on a payment is paid to the acquirer.
Interchange
A fee passed between banks on each card payment: the business’s bank (the acquirer) pays it to the bank that issued the customer’s card. It is one of the costs the MDR pays for.
Settlement
When the money from your customers’ payments reaches your bank account, after the provider’s fee and the GST on it are deducted.
T+1, T+2 (settlement cycle)
T is the day your customer pays. T+1 means the money reaches your bank account one working day later, T+2 two working days later. Weekends and bank holidays usually aren’t working days.
Instant settlement
Getting your money within minutes or on the same day instead of on the standard cycle. Most gateways that offer it charge an extra fee for it.
GST on payment fees
GST is charged on the fee a payment provider deducts, never on the payment itself. It is added on top of the fee, so the total deduction is the fee plus GST.
The official rule: Residual financial services under Heading 9971 attract 9% CGST + 9% SGST (or 18% IGST). GST is charged on the provider’s fee, never on the transaction amount. Applied by default where a provider does not state the rate.
Input tax credit (ITC)
If your business is registered for GST, you can usually claim back the GST you paid on payment fees by setting it against the GST you owe. It is a tax credit, not a refund or cashback, and it has conditions.
The official rule: ITC is available on GST charged for supplies used in the course of business, subject to s.16(2) conditions (tax invoice, receipt, tax paid by supplier, returns filed), time limits (s.16(4)) and blocked credits (s.17(5)). The app cannot determine eligibility; it defaults to 0%. ITC is a tax credit, not cashback.
P2M (person to merchant)
A UPI payment from a customer to a business. The UPI merchant fee (MDR) rules are about P2M payments.
The official rule: Since January 2020, no MDR may be charged on BHIM-UPI P2M transactions (s.10A PSS Act). Zero MDR does not by itself prevent a payment gateway from charging a platform/technology fee — several gateways publish one.
P2PM (person to person-merchant)
A category for small merchants who receive UPI payments into their own account, such as a small shop with a personal QR code.
The official rule: Zero MDR on all P2PM transactions. A merchant with inward UPI credit above ₹1 lakh per month for 3 consecutive months moves to the P2M category. GST registration is not required for P2PM.
P2P (person to person)
A UPI payment between two individuals, such as paying a friend back.
The official rule: No charge to payer or beneficiary on P2P UPI, irrespective of amount. Receiving business payments into a personal UPI ID may instead fall under the P2PM (small merchant) category.
RuPay credit card on UPI
Paying by UPI from a RuPay credit card instead of a bank account. Businesses pay a card-style fee on these payments.
The official rule: Credit-linked UPI follows standard credit card guidelines, not the 0.4% UPI regime. NPCI’s pages say nothing on its MDR. HDFC Bank’s merchant fee schedule says that for payments up to ₹2,000, “MDR will NOT be applicable for merchants with annual turnover of less than Rs 20 Lakhs”; other banks and aggregators may differ. Above that, the MDR is set by the bank or aggregator.
UPI AutoPay (e-mandate)
A standing instruction a customer approves once so a business can collect recurring payments, such as subscriptions, through UPI.
The official rule: UPI Mandates / AutoPay do not carry prescribed MDR under the new framework. Gateways may still charge their own mandate fees.
Chargeback
When a customer’s bank reverses a payment because the customer disputes it, for example for fraud or goods that never arrived. The money is taken back from the business, and some gateways also charge a fee for each chargeback.
Refund
When a business returns money to a customer itself. Many gateways don’t give back their original fee when you refund a payment; each app’s page shows its published refund terms.
MCC (merchant category code)
A four-digit code that describes what a business sells. Banks and card networks use it to decide which fee category a payment falls into.
FIRC and FIRA
A foreign inward remittance certificate (FIRC) or advice (FIRA) is a document from a bank or payment provider confirming money you received from abroad. Businesses use it as proof of foreign income, for example for exports.
Amount received
What actually reaches your bank account from a payment: the payment amount minus the provider’s fee and the GST on that fee. Clarifee ranks every app by this amount.