Plea in SC Against Imposition of MDR on UPI Payments Above Rs 2,000

India's Unified Payments Interface (UPI) fee structure has come under legal scrutiny after a public interest litigation (PIL) was filed in the Supreme Court challenging the proposed Merchant Discount Rate (MDR) on specified merchant payments above Rs 2,000.

The challenge comes shortly after the Centre and the National Payments Corporation of India (NPCI) announced a revised framework under which eligible person-to-merchant (P2M) UPI transactions exceeding Rs 2,000 will attract an MDR of 0.4%, subject to a maximum charge of Rs 300 per transaction.

The new framework is scheduled to come into effect on October 15, 2026. The petition questions the basis of the decision and seeks judicial intervention over the new charges.

Supreme Court Plea Challenges UPI MDR Framework

The PIL challenges the Centre's decision to introduce charges on specified UPI merchant transactions above the Rs 2,000 threshold.

According to reports, the petition has been filed by advocate Anjan Datta and challenges the Centre's September 14 notification as well as the subsequent MDR framework.

The plea seeks to question the introduction of charges on commercial UPI transactions and asks the Supreme Court to examine the legal basis of the new arrangement.

The filing does not itself suspend or cancel the new MDR framework. Any change to the implementation would depend on further proceedings and directions from the Supreme Court or the relevant authorities.

What Is the New UPI MDR Rule?

Under the new framework, selected P2M transactions above Rs 2,000 will attract a Merchant Discount Rate of 0.4%.

MDR is a fee associated with processing merchant payments. Under the announced structure, the charge is applied within the payment ecosystem rather than as a separate fee directly imposed on the consumer.

For transactions of Rs 75,000 or more, the MDR will be capped at Rs 300 per transaction.

For example:

Merchant UPI PaymentMDR at 0.4%Rs 2,000ZeroRs 5,000Rs 20Rs 10,000Rs 40Rs 25,000Rs 100Rs 50,000Rs 200Rs 75,000Rs 300Rs 1,00,000Rs 300 maximum

The exact treatment can vary according to the transaction category and applicable exemptions.

Customers Will Not Directly Pay MDR

The announced MDR is a merchant-side charge, meaning customers are not intended to pay a separate UPI fee for making an eligible merchant payment.

The new framework distinguishes between the fee paid within the merchant payment ecosystem and the amount debited from a customer's bank account.

Person-to-person UPI transfers will continue to remain free, regardless of the transaction amount.

However, there has been public discussion about whether merchants could indirectly reflect higher payment-processing costs in product prices. That would be a separate commercial decision by individual businesses rather than a direct UPI charge imposed on consumers.

P2P Transactions Remain Free

One of the most important features of the revised framework is that person-to-person (P2P) UPI payments remain free.

The Rs 2,000 threshold applies to specified merchant transactions and does not mean that individuals will have to pay MDR when transferring larger amounts to friends, relatives or other individuals.

For instance, transferring Rs 10,000 from one bank account to another through UPI would remain outside the MDR framework.

UPI Payments Up to Rs 2,000 Remain Free

The Centre's notification provides that UPI transactions up to Rs 2,000 will not attract the applicable MDR.

This means the majority of everyday low-value merchant transactions will remain outside the new standard 0.4% charge.

Government estimates cited in reports indicate that more than 95% of P2M UPI transactions are below the Rs 2,000 threshold.

Small Merchants Get an Exemption

The revised framework also provides relief for certain small merchants.

Merchants receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to receive zero-MDR treatment.

The provision is particularly relevant to small retailers, street vendors and other businesses operating through QR-based payments.

The structure is intended to prevent the new payment charges from disproportionately affecting small businesses that rely heavily on UPI for daily transactions.

Special MDR Rates for Certain Sectors

The new system does not apply the standard 0.4% rate to every transaction above Rs 2,000.

Certain essential categories, including railways, telecom, insurance and fuel, will have a flat MDR of Rs 5 per transaction for eligible payments above the threshold.

Capital-market transactions, including payments involving mutual funds, securities, stockbrokers and dealers, will have a separate MDR of 0.02%, capped at Rs 300.

This creates a multi-tiered structure rather than one uniform UPI merchant fee.

Why Was MDR Introduced?

UPI merchant transactions had operated under a zero-MDR model since 2020, with government support and other mechanisms helping sustain the payment ecosystem.

The new framework represents a shift toward creating a commercial revenue model for UPI participants.

The government and NPCI have described the change in terms of the long-term sustainability and expansion of the UPI ecosystem.

The framework is intended to provide revenue to participants involved in processing UPI payments while continuing to keep P2P transactions and most low-value merchant payments outside the charge.

What Does the Supreme Court Petition Argue?

The petition challenges the legal and procedural basis of imposing MDR on specified UPI merchant transactions.

Reports on the petition say it challenges the multi-tiered fee framework and raises questions about the burden it could place on merchants.

Some reports also say the petition invokes constitutional provisions, including Article 14, in questioning aspects of the framework.

These are arguments advanced in the petition and should not be treated as findings by the Supreme Court. The court's eventual consideration, if the matter proceeds, will determine how the legal questions are addressed.

Petition Does Not Mean the MDR Has Been Stayed

The filing of a petition in the Supreme Court does not automatically invalidate or suspend the new MDR framework.

The announced framework remains scheduled for implementation from October 15, 2026, unless the government changes the policy or the Supreme Court issues an order affecting its operation.

The legal challenge therefore adds another layer to an already active debate involving merchants, payment companies, banks, brokers and policymakers.

Retailers and Businesses Raise Concerns

The legal challenge comes amid concerns from parts of the retail and business community.

The Retailers Association of India has warned that additional payment costs could affect merchants, particularly businesses operating on narrow margins. Reuters reported that retailer organisations and financial brokers have raised concerns about the timing of the new charges and their possible impact on business transactions.

The potential effect could vary significantly between businesses depending on transaction size, margins, payment volumes and whether a merchant qualifies for an exemption.

Concerns From the Financial Sector

The new MDR framework also affects certain financial transactions.

Under the separate capital-market rate, UPI payments to brokers and other specified financial entities will attract a 0.02% MDR, subject to the Rs 300 cap.

Reuters reported that some brokerage firms have raised operational concerns about the implications of the new fee structure for trading-related payments.

The impact on the financial sector will depend on how payment costs are incorporated into brokerage and transaction processes.

UPI's Growing Scale

The legal challenge comes at a time when UPI has become one of the world's largest real-time payment systems.

UPI processed around 24.5 billion transactions worth Rs 29.823 lakh crore in August 2026, according to Reuters.

Reuters also reported that UPI accounts for approximately 84% of India's digital payment volume and around 49% of global real-time payment volume.

Because of this scale, even a relatively small transaction fee can have significant financial implications for banks, payment companies and merchants.

UPI MDR Framework at a Glance

CategoryNew MDR TreatmentP2P UPI paymentsZeroP2M payments up to Rs 2,000ZeroEligible P2M above Rs 2,0000.4%Transactions of Rs 75,000 or moreMaximum Rs 300Eligible small P2PM merchants up to Rs 1 lakh/monthZeroRailways, telecom, insurance and fuelRs 5 flat MDRCapital-market transactions0.02%, capped at Rs 300Effective dateOctober 15, 2026

What the Supreme Court May Examine

The legal challenge could bring several issues surrounding the MDR framework before the court.

Potential questions include:

• The legal authority for introducing the new fee structure

• The validity of the Centre's notification

• The structure and classification of different UPI transactions

• The potential burden on merchants

• The constitutional arguments raised by the petitioner

• The relationship between government policy and NPCI's implementation framework

The precise issues considered by the Supreme Court will depend on the proceedings and any directions issued by the court.

Government's Position on UPI Charges

The government has maintained that the revised MDR framework does not amount to a universal charge on UPI users.

The policy keeps P2P transactions free and protects low-value P2M payments. It also provides exemptions for eligible small merchants and lower rates for selected sectors.

The government has argued that the framework is intended to create a sustainable commercial structure while preserving widespread access to UPI.

What Happens Next?

The Supreme Court proceedings will determine whether the petition receives further consideration and whether any interim or final directions are issued.

Meanwhile, the MDR framework is scheduled to take effect on October 15, 2026.

Merchants, banks, payment service providers and fintech companies are therefore likely to continue preparing for the revised fee structure while the legal challenge develops.

Key Takeaways

• A PIL has been filed in the Supreme Court challenging the new UPI MDR framework.

• The challenge concerns MDR on specified P2M UPI transactions above Rs 2,000.

• The standard MDR is 0.4%, with a maximum of Rs 300 for transactions of Rs 75,000 and above.

• P2P transactions remain free, irrespective of transaction value.

• P2M transactions up to Rs 2,000 remain outside the MDR.

• Eligible small P2PM merchants receiving up to Rs 1 lakh per month through UPI QR codes remain exempt.

• Certain sectors, including railways, telecom, insurance and fuel, have a Rs 5 flat MDR.

• Capital-market transactions have a 0.02% MDR, capped at Rs 300.

• The framework is scheduled to begin on October 15, 2026.

• Filing a petition does not by itself mean that the MDR framework has been stayed or cancelled.

Bottom Line

The Supreme Court petition adds a significant legal dimension to the debate over India's new UPI merchant-fee framework.

The government and NPCI have announced a 0.4% MDR on specified merchant UPI payments above Rs 2,000, while retaining zero charges for P2P transfers, low-value P2M payments and eligible small merchants. The framework also provides special rates for certain essential and capital-market transactions.

The petition challenges the legal and constitutional basis of the new charges. Its filing does not, by itself, change the announced implementation date. The outcome will depend on the Supreme Court proceedings and any orders issued in the matter.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. The Supreme Court petition contains arguments advanced by the petitioner and should not be treated as a judicial finding. UPI rules and MDR provisions may also change based on subsequent government, NPCI or court decisions.