UPI has been free to use, for merchants and customers alike, because the law barred any merchant discount rate on it. The Centre now proposes to withdraw that zero-charge protection for merchant payments above Rs 2,000 from October 15. A public interest litigation says a nationwide fee of this kind cannot be created by a press release and FAQs, that its thresholds are unbacked by any disclosed data, and that it burdens small traders in breach of Articles 14 and 19(1)(g). The Court has yet to hear it.
New Delhi: A public interest litigation has been filed in the Supreme Court challenging the Central government’s decision to withdraw the statutory zero-Merchant Discount Rate protection for Unified Payments Interface transactions exceeding Rs 2,000 [Anjan Datta v. Union of India].
The petition, filed by Advocate Anjan Datta, assails the merchant-fee framework scheduled to take effect from October 15, 2026, contending that it is manifestly arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution.
The framework under challenge
Under the announced framework, as set out in the petition, person-to-person transfers and person-to-merchant payments up to Rs 2,000 remain free. A merchant discount rate of 0.4% applies to person-to-merchant payments above Rs 2,000, with transactions of Rs 75,000 and above capped at Rs 300. Specified essential sectors attract a flat Rs 5 charge, capital-market payments carry a 0.02% levy, and merchants receiving up to Rs 1 lakh a month remain exempt. The plea notes that the same no-charge protection continues for RuPay-powered debit cards without any monetary ceiling.
The grounds of challenge
The petition clarifies at the outset that it does not challenge the maintenance of secure payment infrastructure. Its objection is to the creation of what it calls a nationwide compulsory payment burden without the disclosure of cost studies, underlying methodology or enforceable safeguards against the cost being passed on.
On the pass-through concern, the plea argues that although official assertions maintain that merchants cannot pass the fee to consumers, the charge on qualifying receipts will inevitably enter price structures, reduce working capital, or lead low-margin traders to refuse UPI payments or to split transactions to stay under the threshold. A bare direction against an economic consequence that is itself recognised, the petition asserts, does not eliminate the burden.
On the thresholds, the petition contends that the Rs 2,000 transaction mark and the Rs 1 lakh monthly-receipt ceiling are unsupported by any disclosed data. It argues that a transaction of Rs 2,001 attracts a percentage fee while one of Rs 2,000 does not, creating financial “cliffs” that distort behaviour, discriminate between similarly situated merchants, and, through the Rs 300 cap, favour very high-value transactions over smaller ones.
The most substantial legal ground concerns the manner in which the levy has been created. The petition contends that fixing financial charges through press releases rather than notified statutory rules amounts to excessive delegation of an essential fiscal function to what it describes as an unincorporated steering committee, and raises a threshold question of vires, that a nationwide compulsory merchant discount rate cannot rest merely on press releases or FAQs.
What the petition seeks
The petitioner has sought the production of the complete official records behind the framework, and the quashing of the framework insofar as it imposes a merchant discount rate on UPI transactions above Rs 2,000. In the alternative, the plea seeks a transparent re-consultation process based on empirical impact assessments and independent review by the Reserve Bank of India.
Why it matters
UPI’s near-universal adoption owes a great deal to its being free at the point of use, a feature underwritten by the statutory bar on levying a merchant discount rate on it. The proposal to withdraw that protection above a threshold is therefore not a narrow tax tweak but a change to the economics of the country’s dominant retail payment rail, and the petition frames the legal questions that such a change raises.
The strongest of those questions is the one about form rather than fee. Indian administrative law draws a firm line between policy that may be announced and a binding, nationwide financial charge, which ordinarily requires the authority of a statute or of rules notified under one. If a compulsory merchant discount rate has been created by press release and FAQs alone, the challenge that it lacks a proper legal foundation, and that essential fiscal decisions have been delegated to a body without statutory standing, is a serious one that a court can examine without second-guessing the wisdom of the policy. Courts are generally reluctant to interfere with economic policy, but far less reluctant where the objection is that the policy was made in the wrong legal form.
The equality argument is the harder-fought terrain. A tiered fee with sharp thresholds will always produce boundary effects, the Rs 2,001 that is charged where Rs 2,000 is not, and the petition’s “cliff” point is a real one; but the State is ordinarily allowed a degree of latitude to draw lines in fiscal and regulatory matters, provided the classification bears a rational nexus to a legitimate objective. Whether the Rs 2,000 mark, the monthly-receipt ceiling and the differential treatment of RuPay debit cards survive that test will depend heavily on the cost studies and methodology the petition says have not been disclosed, which is why the demand for the official record is central rather than incidental.
At this stage the matter is only a petition. The Centre is yet to respond and may defend the framework as a calibrated measure that protects small merchants through the exemptions while sustaining the payment system, and may point to its legal basis in the governing statute. The Court has recorded no view, and the framework, as things stand, is due to take effect on October 15 unless that changes.
Case Title: Anjan Datta v. Union of India
Court: Supreme Court of India
Petitioner: Advocate Anjan Datta (in person)
Challenge: The merchant discount rate framework on UPI person-to-merchant transactions above Rs 2,000, effective October 15, 2026
Reliefs sought: Production of official records; quashing of the framework above Rs 2,000; alternatively, a fresh data-based consultation with independent RBI review
Status: PIL filed. Not yet heard; no notice or interim order reported. Constitutional questions remain to be decided.
