UPI MDR row: CA flags pressure on low-margin businesses; pharma company director estimates ₹1.2 crore annual hit

The proposed Merchant Discount Rate (MDR) on select high-value UPI merchant payments has triggered concerns among businesses operating on thin margins. Chartered Accountant Kanan Bahl said the new framework could significantly increase costs for such businesses, while pharma company director Rahul Mamman shared an estimate of the potential impact on his own company.

Bahl said the MDR could become a substantial burden for businesses with margins of only 2-3%. At a 0.4% MDR, the cost would amount to roughly 13-20% of gross profit for a business operating within that margin range, depending on the exact margin.

“UPI MDR is only going to burden the low margin businesses,” Bahl said, highlighting the potential pressure on businesses that rely heavily on UPI for collections.

Pharma company estimates ₹1.2 crore annual impact

Mamman, Director at MPC Pharma Pvt Ltd, said his company has actively encouraged customers to use UPI instead of traditional payment methods such as NEFT, cash and cheques.

In a LinkedIn post, Mamman said the company handles around ₹1 crore a day in UPI payments across its operations. Based on the proposed 0.4% MDR, he estimated that the charges could work out to approximately ₹40,000 a day, or about ₹1.2 crore a year.

“For a low margin business that is a major impact on our bottom line,” Mamman said in his post, tagging the National Payments Corporation of India (NPCI) and asking it to reconsider the framework.

He also said the company could consider limiting UPI acceptance for larger payments if the additional cost makes the payment mode uneconomical.

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For a business earning a 2-3% margin, the impact can be significant. A ₹1.2 crore annual expense would represent around 13.3% to 20% of gross profit, if the company's annual UPI collections and margins remain at the levels assumed in the calculation.

Not all UPI merchant payments face 0.4% MDR

Under the revised framework, eligible person-to-merchant (P2M) UPI transactions above ₹2,000 will attract an MDR of 0.4%, subject to an overall cap of ₹300. Transactions below the threshold will remain outside the levy.

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The framework also provides exemptions for small merchants classified under the P2PM category. Merchants receiving up to ₹1 lakh a month through UPI QR will not pay MDR, irrespective of the size of an individual transaction.

Certain sectors will also have a concessional structure. Railways, telecom, insurance, fuel and utilities, among specified categories, will attract a flat ₹5 MDR on transactions above ₹2,000 instead of the 0.4% rate. Capital-market transactions, including payments involving mutual funds, brokers and securities, will attract a lower 0.02% MDR, subject to a ₹300 cap.

The differentiated rates mean the impact will vary considerably across businesses depending on their merchant category, transaction size and UPI collection volumes. For high-volume, low-margin businesses such as some distributors and retailers, however, the additional payment-processing cost could become a significant consideration in deciding how they accept larger customer payments.

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