Payment Gateway Fees and GST: How to Reconcile Settlements

When a payment gateway settles less money than your sales, the difference is usually made up of the gateway fee, 18% GST on that fee, refunds, chargebacks, and for marketplace sellers, GST TCS and income-tax TDS. To reconcile, start from gross sales in the gateway's settlement report, subtract each deduction line, and match the result to the bank credit. In your books, record gross sales and show the fee and GST separately.

This guide is for online sellers, freelancers and shops that collect through a payment gateway or aggregator. Rules are as of October 2026; fee rates depend on your agreement, so treat the rates below as illustrative.

What gets deducted before you are paid

The rules behind these deductions

• Disclosure: Under the RBI (Regulation of Payment Aggregators) Directions, 2025, the merchant agreement must be fair and state settlement timelines transparently, and aggregators must follow RBI's instructions on merchant fees. Settlement timing is as per your agreement, not a single fixed T+1 for everyone.
• Refunds go to the original method: The directions say refunds must go back to the payer's original payment method unless the payer asks for another mode of their own.
• Disputes: Aggregators must run a dispute mechanism covering chargebacks, with refund timelines and an escalation matrix on their website.
• GST on fees: Payment processing is a financial service taxed at 18%. If you are GST-registered, the GST on fees is usually available as input tax credit, subject to normal conditions.
• UPI fees: As of October 2026, UPI payments up to ₹2,000 remain free of merchant fees under a September 2026 government notification. NPCI announced 0.4% (capped at ₹300) on specified merchant UPI payments above ₹2,000 from 15 October 2026, then deferred it on 13 October until after Diwali; the new date is to be notified. If it starts, 18% GST will apply on that fee too.
• Marketplace TCS and TDS: E-commerce operators collect GST TCS at 0.5% (cut from 1% on 10 July 2024) and deduct income-tax TDS at 0.1% (cut from 1% from October 2024).

Worked example: one month's gateway settlement

An online seller's gateway report for October shows gross collections of ₹5,00,000. Rates are illustrative; use your own agreement.

If the bank shows ₹4,85,600 across October's settlement credits (including any credits for late-month sales that settle in early November, and excluding late-September sales that settled in October), the month is reconciled. If not, compare day by day.

How to record it:

• Sales: ₹5,00,000 less ₹6,000 refunds and ₹2,500 chargeback = ₹4,91,500 net sales (record refunds and chargebacks as returns or credit notes in line with your GST practice).
• Gateway charges (expense): ₹5,000.
• Input tax credit: ₹900, if registered and the invoice shows your GSTIN; otherwise ₹900 becomes part of the expense.
• Bank: ₹4,85,600.

Check: ₹4,91,500 − ₹5,000 − ₹900 = ₹4,85,600. Our GST calculator helps verify GST on fee lines.

If the new UPI fee starts

Suppose a customer pays ₹10,000 by UPI and the 0.4% fee applies: fee = ₹40, GST = ₹7.20, so ₹9,952.80 is settled. On ₹1,00,000, the fee would be ₹300 because of the cap, plus ₹54 GST. These numbers are illustrative until NPCI notifies the actual date and coverage.

Marketplace example

On ₹1,00,000 of net taxable sales in a month through a marketplace, TCS at 0.5% = ₹500 and TDS at 0.1% = ₹100 (TDS is calculated on the gross amount as the law defines it). Both are tax credits for you, not costs, provided you match them: TCS appears on the GST portal for you to accept, and TDS in Form 26AS/AIS. See our freelancer tax guide for how TDS credits are claimed.

Step-by-step reconciliation

1. Download three things: the gateway's settlement report for the month, its monthly tax invoice for fees, and your bank statement.
2. Tie gross collections to your sales register. Differences here mean missing orders or failed payments counted as sales.
3. Recalculate fees for a sample of transactions using the rates in your agreement. Check whether the right rate was used for each payment method.
4. Check GST: total GST in the settlement report should equal the GST on the tax invoice, and be 18% of the fees.
5. Match refunds and chargebacks to orders, and record credit notes where required.
6. Match settlement batches to bank credits by date and settlement ID.
7. List and raise discrepancies with the gateway's merchant support, with transaction IDs.

When a fee looks wrong

• Raise a ticket from the gateway dashboard, quoting transaction IDs, the rate charged and the rate in your agreement.
• If unresolved, use the escalation matrix that aggregators must publish, and the grievance officer.
• If still unresolved after 30 days, the RBI Ombudsman at cms.rbi.org.in (helpline 14448) handles complaints against regulated entities, including payment system participants.
• For unexplained charges in your bank account itself, see hidden bank charges refund.

Beware of calls offering "lower MDR" or "faster settlement" that ask for your dashboard login, OTP or a payment to a personal account. Gateways change pricing through your dashboard and written agreement, not over a random call.

What not to do

• Do not book net settlement as sales. It hides fees and understates turnover.
• Do not ignore the monthly tax invoice. Without it, you may lose input tax credit.
• Do not pass gateway fees to card customers without checking the rules; see merchant surcharge on card payments.
• Do not forget TCS and TDS credits if you sell through marketplaces; they reduce your tax payable only if claimed.

Key takeaways

• Settlement = gross collections − fees − 18% GST on fees − refunds − chargebacks (− TCS and TDS on marketplaces).
• GST is charged on the fee, not on your sale, and is usually claimable as input tax credit when registered.
• As of October 2026, UPI up to ₹2,000 is fee-free; the planned 0.4% fee above ₹2,000 is deferred until after Diwali.
• Record gross sales, fees as expense and GST as ITC, and match the result to bank credits.
• Escalate wrong fees to the gateway, its grievance officer and then the RBI Ombudsman after 30 days.

Related guides: Profit vs Cash Flow: Why Profitable Firms Run Out of Cash, Credit Card Chargeback vs Refund: Timelines and Steps.