The Supreme Court is set to consider a petition challenging the Centre's new policy to impose a 0.4% merchant discount rate on UPI payments above Rs 2,000, which critics say lacks statutory backing and may unfairly burden merchants and consumers.
- 0.4% MDR on UPI transactions above Rs 2,000 effective from October 15
- PIL cites lack of transparency and constitutional issues with MDR imposition
- Concerns raised about impact on small merchants and possible consumer costs
What happened
The Indian government announced a merchant discount rate (MDR) of 0.4% on UPI person-to-merchant transactions exceeding Rs 2,000, starting October 15, 2026. This new fee framework exempts transactions up to Rs 2,000 and person-to-person transfers from any charges. Additionally, specific sectors such as railways, telecommunications, insurance, fuel, and agricultural inputs have a flat Rs 5 MDR, while capital market transactions face a 0.02% MDR capped at Rs 300.
In response, a public interest litigation has been filed in the Supreme Court by advocate Anjan Datta. The PIL challenges the notification issued on September 14 and the MDR framework notified on September 15, disputing the constitutional validity of amended provisions enabling the MDR and raising concerns about the lack of published official instruments, transparency, and public consultation.
Why it matters
The introduction of MDR on UPI transactions above Rs 2,000 represents a significant change in the payment ecosystem, which has previously encouraged no-charge digital payments to promote financial inclusion and digital adoption. The petitioner argues that the new MDR framework was introduced without adequate empirical data or impact assessment and relies on press releases rather than formal legislation or official gazette notifications.
Critics warn that the arbitrary imposition of these charges may disproportionately impact merchants, especially those with thin profit margins, and could indirectly increase the cost burden on consumers. The continuation of zero charges for RuPay debit card payments, regardless of transaction size, raises questions of fairness and discrimination within the system.
What to watch next
The Supreme Court will review the petition to determine the legality and fairness of the MDR framework for UPI transactions. Key issues will include the constitutional appropriateness of amended laws, the government’s authority in fixing MDR rates and thresholds via notification, and the potential implications for India’s digital payment landscape and small businesses.
Stakeholders will also watch for whether the court mandates a reconsideration process incorporating transparent public consultation, empirical impact assessment, and protections for micro and small enterprises. Additionally, attention will be given to any directives issued for independent reviews by the Reserve Bank of India and the Union government to ensure a balanced approach to digital payment regulations.