‘Turnover looks big but margins are small, expenses are real’: Entrepreneur writes to PM Modi asking for fairer MDR

MDR on UPI transactions: Consider the actual margin of a business, not just the transaction value, said JK Gokul Balaji, founder of Nachiyar Digital Solutions and BJP social media cell district president from Madurai. He said he was not against MDR but the government must consider the margins for small businesses. 

This comes after the government announced Merchant Discount Rate (MDR) on large-value UPI transactions exceeding ₹2,000. MDR has been capped at ₹300 per transaction on high-value payments of ₹75,000 and above.

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Balaji, tagging Prime Minister Narendra Modi in his post, said that he is writing about MDR not as someone who is opposing the system but as a “small entrepreneur who genuinely wants to build a successful business in India”.   He gave the example of a laptop, purchased at ₹77,500 and sold at ₹80,000, thereby making the margin ₹2,500. Balaji argued that a ₹300 payment charge might appear small compared to ₹80,000 but that is 12 per cent of the ₹2,500 margin. This is only one cost, he argued.

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So, if the business owner manages to generate a monthly margin of ₹30,000-₹40,000, they have to account for: UPI MDR, POS & Card MDR, GST, bank and account maintenance charges, rent, electricity, Internet, transportation, and other basic operating expenses. 

The margin of ₹30,000-₹40,000 is not that in the entrepreneur’s pocket. “A business may generate ₹10 lakh in monthly turnover, but after purchasing the products, the actual margin may still be only ₹30,000 - ₹40,000,” he argued, adding that the turnover looks big but the expenses are real and the margins small.

Balaji said, even so, he understands that nothing comes for free and that UPI needs investments to continue running. He said he also voluntarily accepted the GST registration because he believes in India’s growth story.

“My humble request is simply this: Please consider the actual margin of a business, not just the transaction value. For a large, high margin business, manufacturers, hotels etc ₹300 may be manageable. For someone earning only ₹2,500 on an ₹80,000 laptop, ₹300 is 12% of the entire margin. That difference is enormous for a small entrepreneur,” he said.

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WHAT THE MDR ON UPI TRANSACTIONS RULES SAY

To begin with, no MDR will be charged on UPI transactions up to ₹2,000. For transactions above this amount, the 0.4 per cent fee will be levied. For example, on a ₹3,000 purchase, the MDR will be ₹12, paid by the merchant to its acquiring bank. The commission collected will be shared among payment ecosystem partners, including banks.

Person-to-person (P2P) transactions will remain free of charges regardless of the amount. The MDR will be capped at ₹300 per transaction for payments of ₹75,000 and above. Essential sectors such as telecom, insurance, and fuel will pay a flat MDR of ₹5 per transaction. Payments towards mutual funds and stock brokers will attract an MDR of 0.02 per cent, capped at ₹300.

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Small merchants receiving up to ₹1 lakh per month will continue to enjoy zero MDR on all transactions. UPI app providers are not allowed to charge platform fees or hidden charges. Banks have been advised to ensure that merchants do not pass MDR charges on to customers for UPI payments.

There will be no monthly quotas, volume limits, or tiered caps on free UPI transactions for individuals. Daily transaction limits will be enforced by banks and the National Payments Corporation of India (NPCI), ranging from ₹1 lakh to ₹5 lakh depending on the category. A dedicated fund to promote UPI use among small merchants will be set up, funded by 5 per cent of total MDR collections.