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The Supreme Court today refused to stay the Centre’s decision to introduce merchant discount rate (MDR) charges on select UPI payments above ₹2,000, while seeking responses on the legal basis and nature of the levy. According to a Bar and Bench report, the SC bench, comprising CJI Surya Kant and Justices Joymalya Bagchi and V Mohana, was hearing a PIL filed by advocate Anjan Datta challenging the framework, which is scheduled to take effect from October 15. The SC directed the Centre, the RBI, and the NPCI to file their responses within four weeks. The petition argued that the levy could squeeze merchants’ working capital, encourage traders to refuse UPI payments or split transactions to avoid charges, and eventually be reflected in consumer prices. It questioned the ₹2,000 transaction threshold and the ₹1 Lakh monthly receipt limit for merchant exemptions, alleging that the government had not disclosed the data or methodology used to determine them. The plea also contrasted these restrictions with the continued zero-charge protection for RuPay debit card payments, which has no monetary ceiling. For instance, a ₹2,001 transaction would attract MDR while a ₹2,000 payment would remain exempt, creating an abrupt increase in costs that could influence merchant behaviour, the petitioner argued. During the hearing, Additional Solicitor General N Venkataraman told the court that P2P UPI transfers would remain free and around 96% of merchant transactions would be unaffected. Under the framework, P2P transfers and P2M payments up to ₹2,000 will remain free. Eligible P2M transactions above ₹2,000 will attract 0.4% MDR, subject to a ₹300 cap, which is reached at a transaction value of ₹75,000. Specified sectors, including railways, telecom, insurance, and fuel, will attract a flat ₹5 charge, while capital-market payments will carry a 0.02% levy, capped at ₹300. Small merchants receiving up to ₹1 Lakh a month through UPI QR codes will remain exempt. MDR is charged to merchants for processing payments. The framework prohibits passing the charge on to consumers, although the petition raises concerns about merchants recovering the cost through higher prices. How Centre Cleared Way For UPI MDR The framework follows amendments to the Payment and Settlement Systems Act (PSSA), 2007. In a September 14 gazette notification, the finance ministry specified RuPay-powered debit cards and UPI transactions up to ₹2,000 as electronic payment modes on which banks and system providers cannot impose charges. The notification followed Parliament’s passage of the Taxation And Other Laws (Amendment) Bill, 2026, which amended Section 10A of the PSSA. The earlier provision barred banks and system providers from imposing charges on UPI transactions. The amendment, however, allowed the Centre to specify the electronic payment modes and transaction thresholds that would remain exempt from MDR. The government subsequently fixed the UPI exemption at ₹2,000, paving the way for charges on higher-value merchant payments. The move comes as UPI has grown rapidly over the past few years under the zero-MDR regime. UPI processed 2,451 Cr transactions worth ₹29.82 Lakh Cr in August. NPCI MD and CEO Dilip Asbe said last week that a market-driven model is needed to fund the rising cybersecurity, infrastructure and scalability costs of the payments network. He said the ecosystem would need to keep investing in AI and other technologies to protect UPI infrastructure. “The ability and the tools with the hackers are really very powerful compared to what we could actually use inside. And somewhere AI is fairly expensive to use, and we’ll have to continue to invest, use AI to make our systems fully protected… (so that) the trust in the payment system is fully maintained,” he said. Asbe estimated that the new MDR framework could generate ₹13,000 Cr to ₹15,000 Cr in its first year. He also said the cost of maintaining and expanding the payments infrastructure has risen sharply, including the cost of server hardware.
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