The Supreme Court on Monday sought responses from the Centre, Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) on a petition challenging the proposed 0.4% Merchant Discount Rate (MDR) on specified UPI merchant transactions above ₹2,000. The court, however, declined to grant an interim stay on the framework, which is scheduled to take effect from October 15.
SC seeks responses from Centre, RBI and NPCI
A three-judge Bench headed by Chief Justice Surya Kant asked the respondents to file their responses within four weeks. The petition challenges the legal and policy basis of the new MDR framework and raises questions over its transparency, statutory safeguards and impact on merchants.
The petitioner has questioned the introduction of charges on selected person-to-merchant (P2M) transactions and argued that key classifications and thresholds were introduced without sufficient disclosure of the underlying data and methodology.
0.4% MDR on UPI payments above ₹2,000
Under the new framework, a 0.4% MDR will apply to specified P2M UPI transactions above ₹2,000. The charge will be capped at ₹300 for transactions of ₹75,000 and above.
Certain sectors, including railways, telecom, insurance, fuel and agricultural inputs, will have a flat ₹5 MDR on eligible transactions above ₹2,000. Capital-market transactions will attract a lower 0.02% MDR, subject to a ₹300 cap.
Person-to-person UPI transfers and transactions up to ₹2,000 will remain outside the new charge framework.
Government defends new framework
The Centre has maintained that the MDR is a settlement or service fee shared among participants in the digital payments ecosystem and that the government itself will not receive the money. The government has also argued that the framework is intended to support the long-term sustainability of the UPI ecosystem.
The government has said the charge will apply only to a limited share of UPI transactions, while everyday person-to-person payments and smaller merchant transactions will remain free.
Petitioner challenges threshold and safeguards
The petition challenges, among other things, the ₹2,000 threshold and the methodology used to determine different MDR categories. It argues that the framework could increase costs for merchants and potentially result in the burden being passed on to consumers.
The plea has sought either the quashing or suspension of the MDR framework or its reconsideration following greater transparency, publication of supporting data and an impact assessment.
October 15 rollout remains in place
With the Supreme Court declining an interim stay, the proposed MDR framework remains scheduled for implementation from October 15, 2026, subject to further proceedings in the case. The Centre, RBI and NPCI will now have four weeks to respond before the matter comes up for further hearing.
