Full Breakdown
Supreme Court Refuses Interim Stay on New Unified Payments Interface (UPI) Merchant Discount Rate
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Core Legal Development
On September 14 a three-judge bench of the Supreme Court—Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice V Mohana—heard a public-interest litigation filed by advocate Anjan Datta challenging the Union Ministry of Finance’s Gazette notifications of September 14 and September 15 that introduce a Merchant Discount Rate (MDR) on person-to-merchant UPI transactions above INR2,000. The Court declined to grant an interim stay, allowing the MDR framework to take effect on October 15. It issued notice to the Centre, the RBI and the NPCI and ordered them to file detailed affidavits within four weeks.
Background & Context
The MDR regime, announced on September 15, marks the first charge on UPI payments since the platform’s launch, ending nearly six years of free transactions. A uniform 0.4 % fee applies to merchant-initiated payments exceeding INR2,000, with a maximum charge of INR300 for transactions of INR75,000 or more. The government says the fee funds the long-term sustainability of the UPI ecosystem, covering servers, cybersecurity, fraud-prevention and customer-support costs.
Data & Statistics
- Rate: 0.4 % MDR on eligible transactions.
- Cap: INR300 for payments >= INR75,000.
- Essential sectors (railways, telecom, insurance, fuel, agricultural inputs): flat INR5 per transaction above INR2,000.
- Mutual-fund, securities, stock-broker transactions: 0.02 % MDR, capped at INR300.
- Exemption: 96 % of UPI payments remain exempt; the remaining 4 % includes higher-value merchant transactions.
- Retail impact (AIMRA estimate): net loss of INR2,000–INR12,000 per month for small retailers processing INR5 lakh–INR30 lakh monthly, roughly INR40 crore per month and INR500 crore annually across the sector.
Official Statements & Responses
The Centre clarified that the MDR is a service charge levied by banks and payment aggregators, not a government tax, and that no revenue will flow to the government. “The decision is yet to come into effect on October 15. At the outset, I would clarify that 96 per cent persons using the UPI payment gateway are exempted. Even among the four per cent covered by this decision, essential services are capped.” — The Centre
Additional Solicitor General N Venkataraman told the bench that the fee will be shared among the customer’s bank (? 40 %), the merchant’s bank or gateway (? 30 %), the UPI app provider (? 20 %) and the sponsoring bank of the app (? 10 %). He emphasized that the charge is not a levy and that the government seeks to ensure it is not passed on to consumers.
Criticism & Opposition
The All India Mobile Retailers Association (AIMRA) announced a symbolic “No UPI Day” on October 2, 2026. AIMRA Vice-President Tarvinder Singh said retailers will cover QR codes with black cloth to protest the 0.4 % MDR.
Timeline
- September 14: Supreme Court hearing of the PIL challenging the MDR notifications.
- September 15: Government issues Gazette notifications introducing the 0.4 % MDR.
- September 28: Matter listed on the apex court’s cause list.
- October 2 (scheduled): AIMRA-led “No UPI Day” protest.
- October 15 (scheduled): MDR framework becomes effective.
What’s Next
The Supreme Court has set a four-week deadline for the Centre, RBI and NPCI to submit affidavits detailing the legal basis of the MDR. The Ministry of Finance indicated that the Indian Banks’ Association will launch an awareness campaign to assure that the charge is not transferred to consumers. The Court will review the affidavits before deciding on any further relief.