Supreme Court Refuses to Stay MDR on UPI Payments, Questions Centre: ‘What Is It?’

New Delhi: The Supreme Court on Monday refused to stay the Centre’s decision to introduce a Merchant Discount Rate (MDR) on specified Unified Payments Interface (UPI) person-to-merchant transactions above ₹2,000. At the same time, the court sought a response from the Centre and other authorities and questioned the basis and nature of the new payment charge.

A bench headed by Chief Justice of India Surya Kant, along with Justices Joymalya Bagchi and V. Mohana, was hearing a public interest litigation challenging the new MDR framework. The court directed the Centre, the Reserve Bank of India (RBI), the National Payments Corporation of India (NPCI) and other respondents to file their responses within four weeks.

‘Is it tax or a fee?’: Supreme Court questions Centre

During the hearing, the bench described the matter as being “less a legal and more a technical issue” and asked the government to place the relevant facts and material before the court through an affidavit.

Justice Joymalya Bagchi also questioned the legal character of the levy, asking, “Is it tax or a fee?” The bench further sought clarity on the service against which the payment is being collected and the executive basis for the arrangement.

What is the new UPI MDR framework?

Under the framework announced by the Centre in September, a 0.4% MDR will apply from October 15, 2026, to specified person-to-merchant UPI transactions above ₹2,000. The MDR is capped at ₹300 for transactions of ₹75,000 and above. Certain sectors have separate rates.

The government has clarified that the MDR is not a tax or a government-collected charge. According to the Finance Ministry, it is distributed among participants in the payment ecosystem, including banks and payment application providers.

Will ordinary UPI payments be charged?

The government has said that person-to-person (P2P) UPI transactions will remain completely free, regardless of the amount transferred.

UPI payments to merchants up to ₹2,000 will also remain free. The government estimates that around 96% of all person-to-merchant UPI transactions will remain unaffected by the new framework.

The Centre told the Supreme Court that the new charges are scheduled to come into effect on October 15 and that 96% of gateway users would remain exempt. The government's law officer argued that the charge is a settlement fee within the payment ecosystem rather than money being collected by the government.

Why was the UPI MDR challenged?

The PIL was filed by advocate Anjan Datta, challenging the government's September notifications and the subsequent framework for MDR on specified UPI transactions above ₹2,000.

The petition argues that withdrawing the earlier zero-MDR protection for higher-value UPI transactions creates a financial burden without sufficient disclosure of the statutory basis, methodology and safeguards. It also raises concerns that merchants could potentially pass additional costs on to consumers.

The petitioner sought an interim stay while the challenge was being considered. The Supreme Court, however, declined to grant a stay at this stage and instead sought responses from the Centre and other respondents.

What happens next?

The Centre, RBI, NPCI and other respondents have been given four weeks to file their counter affidavits. The Supreme Court will then consider the matter further.

For now, the new MDR framework has not been stayed. Unless there is a subsequent court order or change in the framework, the specified MDR provisions are scheduled to take effect from October 15.

The hearing therefore leaves two issues running in parallel: the government's stated objective of supporting the long-term sustainability of the UPI payment ecosystem, and the legal questions raised before the Supreme Court about the basis and nature of the new MDR arrangement.