Pneucons switched off UPI because the new 0.4% fee ate 94% of its margin

Pneucons is an Ahmedabad-based industrial marketplace connecting buyers with industrial suppliers, earning a commission on each order

That dropping India's default payment rail costs less business than paying a fee equal to 94% of a thin-margin marketplace's commission

In September 2026 the government announced that a 0.4% merchant discount rate (MDR) would apply to each person-to-merchant UPI transfer above ₹2,000 from 15 October 2026, while person-to-person transfers and small-merchant payments stay free.

Co-founder Pritesh Lakhani laid out the arithmetic on X: Pneucons earns 0.5% of an order's pre-tax value — ₹50 on a ₹10,000 order. But MDR is charged on the GST-inclusive amount, so the customer's ₹11,800 payment attracts ₹47.20 of UPI fees, leaving ₹2.80 of the original ₹50. Eighteen per cent GST on the MDR adds another ₹8.50 — claimable as credit, 'but it's paid upfront. That's working capital stuck on every order'. 'After thoughtful consideration we have decided to disable UPI going forward from 10th Oct,' he wrote.

UPI disabled from 10 October 2026, five days before the MDR takes effect.

The MDR is levied on the GST-inclusive transaction value while the marketplace's commission is earned on the pre-tax value, so the fee is calculated on a larger base than the revenue it taxes.

At 0.4% of an ₹11,800 payment, the fee (₹47.20) is nearly the whole ₹50 commission — processing a UPI order at par would mean working for free plus ₹2.80.

The GST on the MDR is recoverable but must be fronted, turning every UPI order into a small working-capital loan to the exchequer.

When a state prices a payment rail, thin-margin marketplaces do the arithmetic in public — and the taxed rail loses its checkout button.

Pneucons disabled UPI on 10 October 2026, ahead of the 15 October MDR start. Person-to-person transfers and small-merchant QR payments remain free under the framework, leaving the fee to fall on larger online merchants deciding between absorbing it, surcharging, or — like Pneucons — dropping the rail.