New Delhi. The Supreme Court on Monday sought responses from the Centre, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) on the proposed Merchant Discount Rate (MDR) for specified UPI merchant transactions above ₹2,000. The court asked the authorities to clarify the legal basis for imposing the charge, who would receive the money collected through MDR and what role RBI and NPCI would play under the new framework. However, the Supreme Court declined to grant an immediate stay on the implementation of the new fee structure.
The matter came before a bench headed by Chief Justice of India Surya Kant during the hearing of a public interest litigation challenging the Centre’s decision to introduce MDR on specified person-to-merchant (P2M) UPI transactions above ₹2,000. The court has not expressed any final view on the legality of the charges at this stage. The issue will be considered further after the Centre and other concerned authorities file their responses.
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Under the new framework, a 0.4% MDR has been proposed on specified P2M UPI transactions above ₹2,000 in the general category. The MDR will be capped at ₹300 for payments of ₹75,000 or more. For essential and low-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs, a flat MDR of ₹5 per transaction has been prescribed for payments above ₹2,000. The new framework is scheduled to come into effect from October 15, 2026.
Person-to-person (P2P) UPI transactions will remain outside the scope of the charge. Merchant payments of up to ₹2,000 and the existing zero-MDR arrangement for small merchants will also remain unaffected. According to the government, around 96% of P2M transactions will not be impacted by the change.
The petitioner has challenged the Centre’s September 14 notification and the MDR framework announced on September 15. The plea alleges that the fee structure was introduced without adequate statutory safeguards, transparency and public consultation. It seeks the cancellation or suspension of the MDR framework. Alternatively, the petitioner has sought a fresh review after transparent consultation, publication of empirical data, an impact assessment and safeguards for micro and small enterprises.
The plea has also questioned the statutory provision under which MDR can be imposed on UPI transactions. According to the available details, the Centre has proceeded with the framework under the Payment and Settlement Systems Act, 2007. The Supreme Court is now seeking the government’s position on the legal basis for the charge and the nature of the proposed fee.
The court has also sought clarity on how the MDR collected from transactions would be distributed. According to the government, MDR is not a tax and is not intended to be collected as revenue by the government or NPCI. Instead, the charge is proposed to be distributed among various participants in the payment ecosystem, including banks and payment service providers. The government has described the framework as a mechanism intended to support the operation and long-term expansion of the UPI ecosystem.
UPI transactions had operated under a broadly zero-MDR framework for nearly six years, with no general merchant charge on such payments. The proposed changes will introduce a fee structure for specified higher-value merchant transactions, while ordinary P2P UPI transfers will continue without the proposed MDR.
With the Supreme Court declining to grant an immediate stay, the proposed framework remains scheduled for implementation from October 15. However, its final legal status will depend on the responses filed by the Centre, RBI and NPCI and further proceedings before the court. The current order does not amount to a final ruling on the validity of the MDR framework.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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