Payment Gateway Charges in India: Where Every Rupee of Your Fee Goes (2026)

A customer pays you ₹1,000. Two days later, ₹976.40 lands in your bank account.

Nobody took ₹23.60 by mistake. That gap is your payment gateway charge, and it has two parts: a ₹20 fee and ₹3.60 in GST. Once you know how to read that gap, you can predict your costs, compare gateways properly and spot charges you didn't agree to.

This guide follows that ₹1,000 payment, then scales it up to a full month of sales.

The ₹23.60 Breakdown

Here is what happens to a ₹1,000 domestic card or UPI payment on a standard 2% plan:

Two things trip up new sellers here:

1. GST is charged on the fee, not on the ₹1,000. So "2% + GST" means 2.36% in total, not 20%.
2. You can usually claim that ₹3.60 back. If you are GST-registered, the GST on gateway fees is normally available as input tax credit, as long as the gateway invoice carries your GSTIN.

MDR vs TDR: Same Idea, Different Labels

You will see both terms on pricing pages and agreements.

1. MDR (Merchant Discount Rate) is the percentage a merchant pays to accept a card or digital payment. The term comes from the banking and card network side.
2. TDR (Transaction Discount Rate) is what most gateways call the total percentage they deduct from your payment.

For a merchant, the practical question is the same: what percentage leaves my payment before it reaches my bank? Many gateways now call it a "platform fee" instead.

Not Every Payment Method Costs the Same

The 2% figure covers the common methods. Premium cards and foreign cards cost more because the card networks charge the gateway more.

Here is the same ₹1,000 payment through different methods on typical published rates:

Rates reflect published standard pricing from Razorpay, PayU and Cashfree as of November 2026. Your own agreement may differ.

What About UPI?

This is the most misunderstood charge in Indian payments.

UPI payments made straight to a merchant's bank account or QR code have zero MDR. But when the same UPI payment goes through a payment gateway's checkout, many gateways still charge their platform fee. That fee pays for the checkout page, auto-reconciliation, refunds and support. Razorpay, for example, charges its standard 2% platform fee on UPI. (Razorpay)

What this means for you: if most of your customers pay by UPI and you don't need a full checkout, a simple UPI QR or a UPI-focused gateway may cost you less.

The Charges That Don't Show Up in the Percentage

The per-payment fee is easy to see. These are easier to miss:

Setup Fee

A one-time charge to open your account. Most major gateways (Razorpay, PayU, Cashfree, PhonePe PG) now charge ₹0 on their standard plans.

Annual Charges

A fixed yearly fee, payable even in a slow year. CCAvenue's Startup Pro plan, for example, carries a ₹1,200 annual software charge plus GST. (SaaSworthy)

Instant Settlement

Standard settlement takes about two business days. Getting money the same day costs extra. Razorpay lists 0.15% to 0.30% for instant settlement. (Razorpay)

Subscription Fees

Recurring billing usually has its own fee on top of the payment rate. Razorpay's Subscriptions add-on, for example, costs 0.9% per transaction.

Refunds

When you refund a customer, many gateways don't return the original fee. Check your agreement, because a business with frequent returns pays fees on sales it never keeps.

Chargebacks

If a customer disputes a payment with their bank, the gateway may charge a dispute-handling fee, and the amount is held until the dispute is settled.

A Real Month: ₹3 Lakh in Sales

Let's say an online store collects ₹3,00,000 in a month, paid like this:

Now add instant settlement on every rupee at 0.30%: that's another ₹1,062 a month including GST. At 0.15%, it's ₹531.

The lesson: your real rate depends on how your customers pay and which add-ons you switch on. Calculate it from your own payment mix.

How to Read Your Settlement Report

Every gateway gives a settlement or transaction report in its dashboard. Check four columns each month:

1. Gross amount: what the customer paid.
2. Fee: the gateway's charge for each payment.
3. Tax: the GST on that fee.
4. Net settled: what reached your bank.

Then divide total fees plus GST by total gross amount. That figure is your effective rate. If it moves up without a change in how your customers pay, ask your gateway why.

Also download the monthly GST invoice from your gateway. Your accountant needs it to claim input tax credit.

Ways to Lower Your Payment Gateway Charges

Negotiate Rates

Gateways publish standard rates, but most offer custom pricing once you cross a monthly volume threshold. Razorpay, for example, lists custom pricing above ₹5 lakh in monthly sales. Ask once you are near that level.

Skip Instant Settlement

If your cash flow allows, standard settlement in about two days costs nothing extra.

Steer Toward UPI

Where your gateway prices UPI lower than cards, show UPI first at checkout.

Avoid Yearly Fees

For small sellers, a fixed annual charge raises the effective rate more than a slightly higher percentage does.

Pass On Convenience Fees

Some businesses, such as those collecting fees or bills, add a clearly shown convenience fee to cover gateway charges. It must be disclosed to the customer before payment.

Claim GST Credit

Make sure your GSTIN is on your gateway profile so the GST paid on fees comes back to you as input tax credit.

Payment Gateway Charges: Quick Comparison

All rates are before 18% GST. For a full review of each gateway, read our guide to the best payment gateway in India.

FAQs on Payment Gateway Charges

What are the standard payment gateway charges in India?

Most gateways charge about 2% of each successful domestic payment, plus 18% GST on that fee. International and Amex cards usually cost about 3%.

Is GST charged on the full transaction amount?

No. The 18% GST applies only to the gateway's fee. On a ₹1,000 payment with a 2% fee, GST is ₹3.60.

Are failed payments charged?

Generally no. Most gateways charge only on successful transactions.

Why am I charged on UPI payments if UPI MDR is zero?

Zero MDR applies to the UPI payment itself. A gateway may still charge a platform fee for its checkout, reconciliation and support services.

Can I get back the fee on a refunded order?

Usually not. Many gateways keep the original fee when you refund an order. Check your merchant agreement.

What is the cheapest way to accept payments online?

For very small sellers, a direct UPI QR has no MDR. For a full checkout, compare the total yearly cost of gateways, including any annual charges and add-ons.

Final Word

Payment gateway charges in India look simple at 2%, but your real cost depends on your payment mix, add-ons like instant settlement, refunds and any yearly fee. Work out your effective rate from your settlement report every month, and use those numbers when you negotiate or compare gateways.

If you want help setting up GST registration so you can claim credit on these fees, or getting your business ready for gateway KYC, speak to the StartupFlora team.

Disclaimer: StartupFlora is a consultancy service provider specializing in startup consultation. We are not associated or in collaboration with any Government/Non-Government Agency / Institutions / Organisation / Department. For service payments, please ensure all transactions are made directly to our official company account.