₹2,000+ UPI payment charges: SC refuses interim stay on 0.4% MDR, issues notice to govt, RBI, NPCI and others

The Supreme Court on Monday refused to grant an interim stay on the Centre’s decision to impose a 0.4% merchant discount rate (MDR) on specified Unified Payments Interface (UPI) person-to-merchant transactions above Rs 2,000 and issued notices to the government, the Reserve Bank of India (RBI), the National Payments Corporation of India (NPCI) and other respondents.

The bench, headed by Chief Justice of India Surya Kant, was hearing a public interest litigation challenging the Centre’s new UPI merchant-charge framework, which is scheduled to take effect from October 15.

Also Read: India's UPI MDR shake-up: What changes and why it matters

The Court asked the Centre to explain on affidavit the legal and policy basis for imposing a merchant discount rate on select UPI transactions, after the government said the charge was a settlement fee shared among participants in the payments ecosystem and that it was not collecting any amount itself.

The PIL, sought quashing of the government’s decision to permit MDR on UPI merchant payments above Rs 2,000. The petitioner has alleged that the levy was introduced without adequate statutory safeguards, transparency and public consultation.

Under the new framework, general person-to-merchant UPI transactions above Rs 2,000 will attract an MDR of 0.4%, subject to a cap of Rs 300 for transactions of Rs 75,000 and above. UPI payments up to Rs 2,000 and person-to-person transactions will remain free.

Small merchants receiving up to Rs 1 lakh a month through UPI QR codes into their bank accounts will also remain exempt from the levy. The government has said the framework is designed to ensure the sustainability of the digital payments ecosystem while keeping the bulk of everyday UPI transactions free.

Additional Solicitor General Venkataraman told the Supreme Court that 96% of transactions routed through gateways would remain exempt under the new framework, while MDR for essential services would be capped at Rs 5. He said there was also a value cap and stressed that the levy was neither a tax nor a government fee. Chief Justice of India Surya Kant said the Centre should place these details on affidavit, observing that the matter appeared to be “more of a technical issue”.

Also Read: Retailers push back against proposed 0.4% MDR on UPI transactions above Rs 2,000, warn of hit to thin margins

Justice Joymalya Bagchi questioned the executive's scope to impose what he described as an expropriation, saying the court would have understood the measure if it were a fee. “It’s not a fee, then what is the character? Charge of 1% on 140 crore Indians,” he said. Responding, the ASG said there was a cost associated with debit and credit card transactions and that UPI was no different.