Archive · 29 Sep 2026
Supreme Court Questions Legal Basis, Refuses Stay on UPI MDR
The Supreme Court is examining a new charge on some UPI payments made to merchants.
The charge applies to certain payments above ₹2,000.
It is normally set at 0.4% of the payment.
For payments of ₹75,000 or more, the charge cannot exceed ₹300.
Some essential services will instead have a flat ₹5 charge.
A petitioner asked the court to stop the charges before they begin.
The court did not stop them for now, so they remain scheduled for October 15.
The judges want the government to explain what legal power allows the charge.
The government says the money goes between banks and payment companies, not to the government.
The Supreme Court refused to temporarily halt MDR on specified UPI P2M transactions above ₹2,000.
The bench questioned whether the 0.4% charge is a tax, a fee, or another form of expropriation.
The Centre said the charge is a settlement fee between payment aggregators and banks, not government revenue.
MDR is capped at ₹300 for transactions of ₹75,000 or more, with special rates for selected sectors.
The court issued notices to the Centre, RBI and NPCI, giving them four weeks to respond.
- Who
- The Supreme Court, the Centre, the Reserve Bank of India, the National Payments Corporation of India and petitioner Anjan Datta are involved.
- What
- The court is reviewing the legal basis and constitutional challenge to merchant discount rates on specified UPI person-to-merchant transactions.
- When
- The court issued notices on September 28, 2026, and the charges are scheduled to take effect on October 15.
- Where
- The matter was heard by the Supreme Court in New Delhi.
- Why
- The petitioner argues that the charges could encourage a return to cash transactions and challenges the executive authority and amended Section 10A of the Payment and Settlement Systems Act, 2007.
Petitioner and court concerns
Government’s response
Legal authority
Petitioner and court concerns
The petitioner challenges the executive’s authority to impose the charge, while the bench asked what legal basis exists if the MDR is neither a tax nor a fee.
Government’s response
The Centre says the MDR is a settlement fee between payment aggregators and banks and a purely administrative mechanism rather than government revenue.
Effect on digital payments
Petitioner and court concerns
The petition alleges that MDR could encourage merchants and users to return to cash transactions and contribute to black money.
Government’s response
The Centre says the charge will affect a limited group, claiming 96% of gateway users are exempt and that additional caps and concessions apply.
Statutory protection
Petitioner and court concerns
The petitioner challenges amended Section 10A of the Payment and Settlement Systems Act, 2007, alleging it gives the executive unguided power to determine which electronic payment modes receive no-charge protection.
Government’s response
The government maintains that the charges concern arrangements among aggregators and banks; the court has sought a formal explanation through affidavits.
- Standard MDR
- 0.4% on specified UPI person-to-merchant transactions above ₹2,000.
- Maximum MDR
- ₹300 per transaction for payments of ₹75,000 and above.
- Essential sectors
- Railways, telecom, insurance, fuel and agricultural inputs face a flat ₹5 MDR above ₹2,000.
- Other financial transactions
- Payments involving mutual funds, securities, stockbrokers and dealers face a 0.02% MDR, capped at ₹300.
- Court decision
- The Supreme Court issued notices but refused to grant an interim stay.
- Government position
- The Centre said the charge is neither a tax nor a fee and that the government will not receive the money.
- Response deadline
- The Centre, RBI and NPCI were given four weeks to file counter affidavits.
