Supreme Court to hear plea against new UPI MDR charges

MUMBAI: UPI’s free ride is heading for a courtroom pit stop, with the Supreme Court set to hear a PIL challenging the new Merchant Discount Rate (MDR) on specified high-value merchant payments. The Supreme Court is scheduled to hear on Monday, September 28, a public interest litigation challenging the Centre’s decision to introduce an MDR on specified person-to-merchant (P2M) UPI transactions above Rs 2,000. The new framework is scheduled to take effect from October 15, 2026.

Under the framework, eligible merchant transactions above Rs 2,000 will attract an MDR of 0.4 per cent. The charge will be capped at Rs 300 for transactions of Rs 75,000 and above. Person-to-person UPI transfers will remain outside the MDR regime, while merchant payments of up to Rs 2,000 will also continue without the charge.

The new structure marks a departure from the zero-MDR framework for specified UPI transactions that has been in place since January 2020. The charge is to be borne by merchants rather than consumers under the notified framework.

The framework provides separate treatment for sectors identified as essential or operating on thin margins. Railways, telecom, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 on transactions above Rs 2,000.

Transactions involving mutual funds and securities, along with payments routed through stockbrokers and dealers, will carry an MDR of 0.02 per cent, with the charge capped at Rs 300.

Person-to-person transactions remain exempt regardless of value. According to the figures cited in the report, P2P transfers account for 37 per cent of UPI transaction volume and 70 per cent of its transaction value.

The petition has been filed by advocate Anjan Datta and challenges the Centre’s September 14 notification and the MDR framework announced on September 15. The plea argues that the levy was introduced without adequate statutory safeguards, transparency or public consultation.

It also questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, arguing that the provision gives the executive broad discretion over which electronic payment systems should continue receiving protection from charges.

The petition further compares the treatment of UPI with RuPay debit cards, pointing to the continued no-charge protection for RuPay transactions without a comparable monetary ceiling.

The petitioner has also argued that the MDR could increase costs for merchants, particularly businesses operating on thin margins, and potentially have an indirect effect on consumers and digital-payment adoption. These are arguments made in the petition and remain subject to the court’s consideration.

The PIL seeks the quashing or suspension of the MDR framework to the extent that it applies to UPI merchant transactions above Rs 2,000.

Alternatively, it seeks a fresh review following transparent consultation, publication of relevant empirical data and an impact assessment. The petition also seeks safeguards for micro and small enterprises, including consideration of merchant turnover, MSME status, actual margins, geography and ability to bear the cost when determining future MDR classifications.

The Centre and the Reserve Bank of India are among the respondents.

The Supreme Court’s September 28 cause list places the matter before a bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana.

A LocalCircles survey cited in the report also points to differing levels of willingness among businesses to absorb the proposed MDR. The survey collected 32,796 responses from merchants and businesses across 242 districts, with 48 per cent of respondents from tier-I districts, 33 per cent from tier-II districts and 19 per cent from tier-III and tier-IV districts.

Only 17 per cent said they were prepared to pay an MDR of 0.4 per cent or more on UPI transactions above Rs 2,000, while 41 per cent said they were unwilling to bear any MDR. Another 9 per cent said they did not accept UPI payments.

Among respondents willing to pay a fee, 15 per cent said they would accept up to 0.04 per cent, 8 per cent up to 0.25 per cent, and 5 per cent each up to 0.1 per cent, 0.2 per cent and 0.5 per cent. Another 12 per cent said they could absorb an MDR of up to 1 per cent.

With the October 15 implementation date approaching, the Supreme Court hearing will put the legal basis and structure of the new UPI merchant charge under judicial scrutiny before the fee regime takes effect.