The Supreme Court on Monday issued notices to the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) on a petition challenging the government’s decision to introduce a 0.4% Merchant Discount Rate (MDR) on certain UPI person-to-merchant transactions exceeding Rs 2,000.
However, the court did not suspend the implementation of the new MDR framework, which is scheduled to come into effect from October 15. The Union of India, RBI and NPCI have been asked to file their responses within four weeks.
Solicitor General of India informed the court that MDR charges would not be collected by the government. He said the “MDR is merely a service charge levied by aggregators and banks.”
New UPI charges and exemptions
The revised framework introduces a 0.4% MDR on eligible UPI merchant payments above Rs2,000, ending the system of completely free UPI payments that had continued for nearly six years. Person-to-person transfers and smaller transactions will remain exempt from the charge.
The MDR will have a ceiling of Rs300 for transactions of Rs75,000 and above. Sectors such as railways, telecom, insurance, fuel and agricultural inputs will face a flat MDR of Rs5 for qualifying transactions.
Payments involving mutual funds, securities and stockbrokers will attract a lower MDR of 0.02%, also capped at Rs300. P2P transactions, which account for a significant share of UPI usage, will continue without charges.
Petition challenges MDR framework
The petition, filed by advocate Anjan Datta, challenges the Centre’s September notifications introducing the new payment charges. It argues that the framework was brought in without sufficient statutory safeguards, transparency or public consultation.
The plea also questions the validity of amendments to the Payment and Settlement Systems Act, 2007, claiming they provide broad powers to decide which digital payment systems remain free of charges.
The petitioner has argued that the MDR framework could affect merchants, particularly small businesses with limited margins, and may result in higher costs being passed on to consumers.
The plea seeks withdrawal or suspension of MDR provisions for UPI transactions above Rs2,000. Alternatively, it has requested a review based on transparent consultation, impact assessment and safeguards for micro and small enterprises.
