Supreme Court to hear plea against 0.4% MDR on UPI payments above Rs 2,000

The Supreme Court will on Monday hear a plea challenging the Centre's decision to impose a Merchant Discount Rate, or MDR, on specified UPI person-to-merchant transactions above Rs 2,000. The petition questions both the legal basis of the move and the way it was brought in.

The government has ended nearly six years of fully free UPI payments by introducing a 0.4 per cent fee on merchant payments above Rs 2,000 through the UPI platform from October 15. Everyday person-to-person transfers and small payments have been kept outside the charge.

According to the apex court's cause list of September 28, the matter is listed before a bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana.

Under the new framework, the MDR will be capped at Rs 300 for payments of Rs 75,000 and above. Essential and thin-margin sectors such as railways, telecom, insurance, fuel and agricultural inputs will pay a flat MDR of Rs 5 per transaction for payments above Rs 2,000.

Payments into mutual funds, securities, and through stockbrokers and dealers will attract 0.02 per cent MDR, again subject to a cap of Rs 300. Person-to-person transfers, which account for 37 per cent of UPI's transaction volume and 70 per cent of its transaction value, will continue to attract zero charges regardless of size.

The public interest litigation, filed by advocate Anjan Datta, challenges the Centre's September 14 notification and the MDR framework announced on September 15, which is to take effect from October 15. The plea alleges that the levy was introduced without adequate statutory safeguards, transparency or public consultation.

It also challenges the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, saying it gives unguided powers to the executive to decide which electronic payment modes will get no-charge protection. The plea said, "Declare that no MDR or analogous compulsory charge may be imposed or recovered merely on the strength of a press release or FAQs absent a duly authorised, authenticated and published statutory instrument."

The petitioner has also questioned the distinction between UPI transactions and RuPay debit card payments, pointing out that the notification continues no-charge protection for RuPay debit cards without any monetary ceiling. The plea says the framework is arbitrary and discriminatory, and may hurt merchants, especially those with low margins, while also creating a possible indirect burden on consumers and increasing the risk of digital exclusion.

It has sought the quashing or suspension of the framework to the extent that it imposes MDR on UPI transactions above Rs 2,000. In the alternative, it has asked for a fresh look at the framework after transparent consultation, publication of empirical data and an impact assessment, along with safeguards for micro and small enterprises.

The plea also said, "Direct that any future MDR classification be based on relevant considerations including merchant turnover, statutory MSME status, actual margins, geography and ability to bear the cost, and avoid cliff-edge treatment unsupported by evidence." The Centre and other authorities, including the Reserve Bank of India, have been made party respondents in the case.

The case will therefore test the government's new MDR framework for higher-value UPI merchant payments, while the petition asks the court to examine the statutory basis, the classification of transactions and the possible impact on merchants and users.