MDR fees may be tax-deductible for Indian merchants, tax experts say
Merchant discount rate fees paid to banks and payment providers for digital transactions can be claimed as business expenses under the Income Tax Act, according to tax experts, potentially lowering merchants’ effective payment-acceptance costs.
What happened
NPCI · Tax experts say merchant discount rate fees paid to banks and payment providers for digital transactions should qualify as deductible business expenses
Key facts
- Approximately 25% corporate tax rate example
Why this matters
Payments companies can position MDR as tax-efficient operating spend in merchant acquisition, partnership, and pricing discussions.
What to watch
- CBDT guidance, tax rulings or assessment trends explicitly addressing MDR and payment-gateway fee deductibility.
- Payment-provider invoice formats that separately identify MDR, GST, platform fees and financing charges.
- Adoption of fee-reconciliation tools by merchant accounting platforms and tax-return preparers.
- Changes in merchant payment-method mix, especially increased card acceptance among formal SMEs.
- Evidence that acquirers raise or maintain headline MDR because the after-tax merchant cost has fallen.
- Map MDR, gateway, aggregator, chargeback and settlement fees into separately auditable expense codes.
- Require payment providers to issue GST-compliant invoices and transaction-level fee statements.
- Model net MDR after corporate tax to reassess payment-method steering, checkout incentives and acceptance economics.
- Train franchisees and small-format merchants on invoice retention and reconciliation requirements.
- Monitor whether payment acquirers use improved merchant economics to defend MDR pricing rather than pass through reductions.