Supreme Court Seeks Centre Reply On MDR For UPI Payments Above ₹2,000

The Supreme Court on Monday sought the Centre’s response to a petition challenging the government’s plan to impose a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) person-to-merchant payments above ₹2,000. Hearing a public interest litigation (PIL) filed by advocate Anjan Datta, a bench headed by Chief Justice of India Surya Kant said, “This is less of a legal and more of a technical issue. We need you (Centre) to state the facts on a short affidavit.”

The bench, which also included Justices Joymalya Bagchi and V Mohana, pressed the government on the legal basis for the levy. “What is the executive scope of imposing this charge? If it is a fee, it cannot be by way of an executive fiat. If not, then what is it?” the bench said. The court declined to halt the September 14 notification, saying the issue touched on economic policy. It also sought replies from the National Payments Corporation of India (NPCI) and the Reserve Bank of India.

Proposed Charge Details

Under the proposed framework, the Centre plans a 0.4% MDR on UPI payments above ₹2,000 made to merchants. The charge would be capped at ₹300 for transactions above ₹75,000.

Different rules would apply in some sectors. Payments above ₹2,000 in railways, telecom, insurance, fuel and agricultural inputs would attract a flat MDR of ₹5 per transaction. Capital-market payments would face an MDR of 0.02%, with the amount capped at ₹300 per transaction.

The Centre has said person-to-person UPI transfers will stay free no matter the amount. The September 14 notification from the Ministry of Finance lays out the MDR proposal and is scheduled to start on October 15.

Petition And Arguments

The case reached the court through a PIL filed by Datta.

Datta filed the petition and argued it with advocate Ashutosh Dubey. The challenge targeted both the September 14 Ministry of Finance notification and the constitutional validity of the legislative amendment that made it possible.

For the Centre, Additional Solicitor General N Venkataraman defended the move. “The decision is yet to come into effect on October 15. At the outset, I would clarify that 96% persons using the UPI payment gateway are exempted. Even among the 4% covered by this decision, essential services are capped.”

He also maintained that the proposed MDR would not add to government revenue. “Not one rupee from this will go to the government. It is a settlement fee among the two players – bank and the service provider which the National Payments Corporation of India (NPCI) facilitates,” Venkataraman said.

Legal Background

Datta told the court that in 2019 the Centre issued a notification removing MDR on person-to-merchant UPI transactions with effect from January 1, 2020. UPI transactions and RuPay debit-card transactions were then protected from any direct or indirect charge under Section 10A of the Payment and Settlement Systems Act, 2007, read with Section 269SU of the Income-tax Act, 1961.

The position changed in August, when Parliament passed the Taxation and Other Laws (Amendment) Act, 2026 and it later received Presidential assent. The law amended Section 10A of the PSS Act, 2007, giving the Centre power to decide by notification which prescribed electronic modes would receive “no-charge” protection.

Using that authority, the Centre issued the September 14 notification. It left only RuPay debit-card transactions and UPI transactions up to ₹2,000 outside the “no-charge” protection. The court said it wanted to examine the source of the power and the legal character of the levy. “We are not on the coverage under the policy but the source of this legal incident. We will examine, when it is a charge under the Income Tax Act, in whose hands does it amount to be an income.”