The Supreme Court has declined to stay the government’s plan to implement a 0.4% Merchant Discount Rate (MDR) on UPI transactions over Rs 2,000 effective October 15. While the court did not provide an immediate freeze, it issued notices to the government, RBI, and NPCI to justify the legal basis for the levy. This development brings clarity to the upcoming fee structure for larger digital transactions.
The Supreme Court has decided against staying the government’s new Merchant Discount Rate (MDR) framework for Unified Payments Interface (UPI) transactions. This means that, as of now, the new fee structure is set to proceed starting October 15. While the court did not grant an immediate pause, the bench led by Chief Justice Surya Kant has asked the Centre, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI) to submit a formal response within four weeks. The court is seeking technical and legal justification for how these charges are being implemented under existing laws.
UPI Merchant Fee Schedule From October 15
Under the announced plan, a 0.4% MDR will apply to person-to-merchant UPI transactions that exceed Rs 2,000. The government has stated that 96% of users will remain unaffected, as the fee targets larger merchant payments rather than everyday peer-to-peer transfers or small purchases. To manage the impact on specific essential sectors, the government has capped the fees for telecommunications, insurance, and fuel retail transactions at a flat Rs 5 for payments exceeding Rs 2,000. Additionally, high-value payments directed toward mutual funds and securities will face a lower 0.02% fee, which is subject to a maximum cap of Rs 300 per transaction.
Regulatory Oversight on Digital Payment Levies
The implementation of these charges has triggered a legal debate regarding the authority behind such levies. The petitioner in the case argued that the current notification process lacks the necessary transparency and unfairly targets digital merchants. During the hearing, the government clarified that this charge acts as a settlement mechanism between payment aggregators and banking institutions rather than a traditional tax. The bench, however, pushed back on this explanation, requesting an affidavit to reconcile these charges with the Payment and Settlement Systems Act, 2007.
For investors and market participants, this development is significant because it touches the revenue model of the digital payments ecosystem. Historically, UPI transactions have operated with zero MDR, which has encouraged massive adoption across India. By introducing a fee structure for larger transactions, the government is essentially creating a framework to share costs between merchants, banks, and payment providers. The upcoming response from the RBI and the government will be the next critical update. Investors may track how this change affects merchant behavior, whether there is a shift in payment preferences for high-value transactions, and how this impacts the profitability of digital payment aggregators and participating banks in the coming quarters.