Full Breakdown
Supreme Court Public Interest Litigation (PIL) Challenges New UPI Merchant Discount Rate
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Core Event: Legal Challenge to the Proposed UPI MDR
Advocate Anjan Datta has filed a public-interest litigation in the Supreme Court of India contesting the Union Government’s decision to levy a merchant discount rate (MDR) on Unified Payments Interface (UPI) person-to-merchant (P2M) transactions above INR2,000. The petition argues that the framework, announced in a September 14 notification and detailed on September 15, lacks statutory safeguards, transparency, and public consultation.
Background & Context
The National Payments Corporation of India (NPCI) introduced the MDR framework in September 2024, stating it would become operative on October 15, 2026. The move ends the long-standing zero-MDR protection for UPI payments above the INR2,000 threshold, while retaining free P2P transfers and P2M transactions up to that amount. The government justified the change as a means to align UPI fees with other electronic payment modes, noting that RuPay debit-card transactions continue to enjoy unlimited no-charge protection.
Data & Statistics
- MDR rate: 0.4 per cent on general P2M UPI transactions above INR2,000.
- Cap: Maximum charge of INR300 for any single transaction of INR75,000 or more.
- Sector-specific rates:
- Essential and thin-margin sectors (railways, telecommunications, insurance, fuel, agricultural inputs) – flat INR5 per transaction above INR2,000.
- Capital-market transactions – 0.02 per cent, also capped at INR300.
- Exemptions: Merchants receiving up to INR1 lakh per month through UPI QR codes are not subject to the MDR.
Official Statements & Responses
The Union Government, through the September 14 notification, asserted that the MDR will be applied uniformly to qualifying P2M UPI payments and that the fee structure is designed to be proportionate to transaction value. It emphasized that the no-charge protection for RuPay debit cards will remain unchanged, highlighting a distinction between the two payment instruments.
The petition seeks:
- A quashing or suspension of the MDR provision for transactions above INR2,000;
- An independent review by the Reserve Bank of India (RBI) and the Union Government;
- Publication of empirical data, an impact assessment, and a transparent consultation process before any implementation.
Criticism & Opposition
The petitioner contends that the MDR framework is arbitrary and discriminatory, potentially harming low-margin merchants. The filing argues that the fee could be passed indirectly to consumers, reduce working capital for small traders, or lead to transaction-splitting and refusal of UPI payments. It also points out that the operative instrument prescribing the charges has not been published in the Official Gazette, and that the government’s reliance on a press release for rate fixation lacks legal rigor.
Timeline
- September 14 (occurred): Government issues notification introducing the MDR.
- September 15 (occurred): Detailed MDR framework announced.
- October 15, 2026 (scheduled): Planned commencement date for the MDR, pending Supreme Court outcome.
What’s Next
The Supreme Court will consider the PIL and may issue an interim order to stay the MDR’s enforcement pending a full hearing. If the Court upholds the petition, the government would need to revise the framework, conduct the requested consultations, and possibly seek RBI guidance before any fee structure is applied.