The Supreme Court has sought an affidavit from the Centre explaining the legal and executive basis for permitting Merchant Discount Rate (MDR) on specified merchant UPI payments above ₹2,000. The Bench issued notice to the Centre, the Reserve Bank of India and the National Payments Corporation of India, but declined to stay the framework scheduled to take effect on October 15.
Thank you for reading this post, don't forget to subscribe!
New Delhi: The Supreme Court on Monday asked the Union government to place on record the basis of its decision permitting charges on certain commercial Unified Payments Interface transactions exceeding ₹2,000.
A Bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana issued notice to the Centre, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) in a writ petition filed by advocate Anjan Datta.
The petition challenges the Finance Ministry notifications dated September 14 and September 15, 2026, concerning MDR on specified person-to-merchant UPI transactions.
Court Questions Source Of Executive Power
During the hearing, the Bench sought clarity on the character of the proposed charge and the authority under which the framework had been introduced. The Court indicated that the issue involved technical questions and directed the Centre to explain the relevant facts and legal basis through an affidavit.
Justice Bagchi specifically raised the question of how the charge could be imposed through executive action if, as the Centre maintained, it was neither a tax nor a fee collected by the government. The Bench also sought an explanation of the service for which the amount would be payable and the legal incidence of the charge.
The Court referred to Section 269SU of the Income Tax Act, which requires specified businesses to provide prescribed electronic payment facilities, while examining the petitioner’s argument that the impugned framework could burden merchants who are legally required to offer digital payment options.
Centre Says Government Will Not Receive Any Amount
Appearing for the Union government, Additional Solicitor General N. Venkataraman submitted that the proposed MDR was neither a tax nor a fee payable to the government. According to the Centre, no part of the amount would go to the public exchequer.
The law officer described it as a settlement charge operating between payment aggregators, banks and other participants in the UPI ecosystem. He submitted that transaction-processing infrastructure carries a cost and that the measure was intended to preserve the efficiency and sustainability of the digital payments network.
The Centre further submitted that nearly 96 per cent of merchant transactions would remain unaffected and that the framework expressly bars service providers from passing the charge to consumers through platform or hidden fees.
Request For Interim Stay Declined
Counsel for the petitioner sought an interim stay, contending that the proposed charges could discourage digital payments and risk pushing transactions back towards cash. The petitioner also argued that merchants could ultimately attempt to shift the economic burden to customers despite the stated prohibition.
The Bench, however, declined to halt the framework at this stage. It issued notice to the respondents and sought the Centre’s affidavit explaining the policy, its legal foundation and its operational structure.
Which UPI Transactions Are Covered?
The framework does not impose a charge on person-to-person UPI transfers, irrespective of the amount. Merchant payments up to ₹2,000 also remain within the zero-MDR regime. Small merchants receiving qualifying QR-code payments within the prescribed monthly threshold are similarly stated to remain protected.
For specified person-to-merchant transactions exceeding ₹2,000, the standard MDR is proposed at 0.4 per cent. A ceiling of ₹300 would apply to transactions of ₹75,000 and above.
For essential and thin-margin sectors—including railway services, telecom, insurance, fuel and agricultural inputs—the charge is proposed as a flat ₹5 on covered transactions above ₹2,000. Capital-market transactions are stated to attract MDR at 0.02 per cent, subject to a ₹300 cap.
The September 14 notification issued under Section 10A of the Payment and Settlement Systems Act continues protection against direct or indirect charges for RuPay debit-card payments and UPI transactions up to ₹2,000.
Core Issue Before Supreme Court
The case places two competing considerations before the Court: the statutory policy of promoting low-cost digital payments and the government’s claim that the UPI ecosystem requires a sustainable mechanism to recover processing costs.
The Centre’s forthcoming affidavit is expected to address who legally bears the MDR, the source of power for the impugned framework, the role of banks and payment-system operators, and the safeguards preventing the charge from being passed on to consumers.
Case: Anjan Datta v. Union of India | W.P.(C) Diary No. 57387/2026