UPI Charges From October 15: Supreme Court Seeks Response On 0.4% Charge Above Rs 2,000

The proposed return of charges on select UPI merchant payments has moved into the legal spotlight, with the Supreme Court seeking responses from the Centre, the Reserve Bank of India and the National Payments Corporation of India. The court has not granted an interim stay on the new framework, meaning the proposed Merchant Discount Rate (MDR) remains scheduled to come into force from October 15, 2026.

UPI MDR Row: Supreme Court Seeks Responses on 0.4% Charge Above Rs 2,000

The case concerns a 0.4% MDR on specified person-to-merchant UPI transactions above Rs 2,000. While the charge is payable within the merchant-side payment ecosystem rather than directly by consumers, its introduction would mark a significant change after years of zero-MDR UPI transactions.

The proceedings stem from a public interest litigation filed by advocate Anjan Datta. The petition challenges the Centre's September 14 notification and the MDR framework announced on September 15. The respondents have been given four weeks to file their responses.

During the hearing, the Solicitor General told the court that the MDR does not represent a government charge. His position was that the amount is a service charge collected within the payment ecosystem by banks and aggregators for processing transactions and related infrastructure.

The petition takes a different view of the framework's legal basis. It questions whether the levy was introduced with sufficient statutory safeguards and transparency and also challenges the amended Section 10A of the Payment and Settlement Systems Act, 2007.

The petitioner has also raised concerns over the absence of adequate public consultation and sought greater disclosure of the data and assessment underlying the decision. The plea asks the court to quash or suspend the MDR framework for UPI payments above Rs 2,000 or, alternatively, direct the authorities to reconsider it after consultation, an impact assessment and safeguards for micro and small businesses.

New Changes Under UPI MDR Framework

The revised system does not put a charge on every UPI payment. The 0.4% MDR applies to specified person-to-merchant transactions where the payment exceeds Rs 2,000. Person-to-person transfers remain outside the charge, while eligible low-value merchant transactions and small merchants also continue to receive protection under the framework.

For larger transactions, the MDR will be subject to a ceiling. Once an eligible payment reaches Rs 75,000, the maximum charge is capped at Rs 300. This means the percentage-based charge will not continue increasing beyond the prescribed cap.

The framework also creates separate treatment for certain sectors. Transactions involving areas such as railways, telecom, insurance, fuel and agricultural inputs will attract a flat Rs 5 MDR for eligible payments above Rs 2,000 instead of the standard 0.4% rate.

Capital-market related payments have been assigned another rate. Transactions involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, with the charge capped at Rs 300.

UPI Charges: Who Will Pay And Who Will Remain Exempt?

The distinction between merchant payments and person-to-person transfers is central to the new system. A consumer sending money to another individual through UPI will continue to do so without an MDR, regardless of the transaction amount.

Similarly, the framework does not make ordinary low-value merchant payments subject to the new 0.4% rate. The government has said that around 96% of P2M transactions will remain unaffected, while payments covered by the existing zero-MDR protections for eligible small merchants will also remain outside the levy.

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