UPI charges: SC refuses stay on 0.4% MDR; issues notice to govt, RBI, NPCI

During the hearing, the Centre informed the court that 96 per cent of people using the UPI gateway would remain exempt from the charge. Observing that the issue appeared “less legal and more technical,” the bench directed the parties to place the relevant material on record.

The new framework, announced on September 15, is scheduled to come into effect from October 15. Eligible merchant transactions above Rs 2,000 will attract an MDR of 0.4%, capped at Rs 300 for payments of Rs 75,000 and above.

The levy will apply within the merchant payment ecosystem and, according to the government, customers will not be required to pay the MDR separately.

What is the new UPI MDR framework?

For specified person-to-merchant UPI payments above Rs 2,000, the MDR has been fixed at 0.4%. The charge will reach the Rs 300 ceiling for transactions of Rs 75,000 and above. Certain essential and thin-margin sectors have been placed under a separate structure. Transactions above Rs 2,000 involving railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 per transaction.

It is reportedly said that payments related to mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, also capped at Rs 300.

Person-to-person UPI transfers will remain completely free, irrespective of the amount involved. Payments to merchants up to Rs 2,000, along with transactions covered under the zero-MDR framework for small merchants, will also remain free.

The government has said about 96% of merchant transactions will remain unaffected.

What does the PIL challenge?

The PIL was filed by advocate Anjan Datta and challenges the Centre’s September 14 notification as well as the MDR framework announced on September 15. The framework is scheduled to take effect from October 15.

The petition challenges the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007.

It alleges that the provision gives the executive insufficiently defined powers to decide which electronic payment modes should receive protection from charges.

The plea also questions whether the MDR framework can be imposed through the notification and related announcements without what the petitioner describes as adequate statutory safeguards, transparency and public consultation.

The petitioner has sought a declaration that an MDR or similar compulsory charge cannot be imposed merely on the basis of a press release or FAQs without a duly authorised, authenticated and published statutory instrument.

UPI Vs. RuPay

The plea also questioned the different treatment of UPI and RuPay debit card transactions. Under the new framework, UPI transactions up to Rs 2,000 retain zero-charge protection, while the notification continues the no-charge protection for RuPay-powered debit cards without a monetary ceiling. The petitioner has argued that the distinction is arbitrary and discriminatory.

The petition has further raised concerns about the possible impact of the MDR framework on merchants, particularly businesses operating on thin margins. It has also raised the possibility of costs being indirectly passed on to consumers and concerns around digital exclusion.

What has the petitioner sought?

The PIL seeks the quashing or suspension of the MDR framework insofar as it imposes a charge on UPI transactions above Rs 2,000.

Alternatively, it has sought reconsideration of the framework after transparent consultation, publication of empirical data and an impact assessment, along with safeguards for micro and small enterprises.

The petition has also proposed that any future MDR classification take into account factors such as merchant turnover, MSME status, actual margins, geography and the ability of businesses to bear the cost, rather than relying on a fixed threshold.

The Centre and other respondents, including the Reserve Bank of India, have been made parties to the proceedings.