The new framework proposes a 0.4% MDR on specified person-to-merchant UPI payments above ₹2,000, capped at ₹300.
The Centre told the court the MDR is a settlement fee, not a tax or government fee.
The PIL challenges the levy’s legal basis, ₹2,000 threshold and differential treatment of UPI and RuPay debit-card payments.
The Supreme Court on Monday refused to stay the Centre’s decision to impose a merchant discount rate (MDR) on specified UPI payments above ₹2,000, while seeking the Union government’s explanation on the legal and factual basis for the levy before it takes effect on October 15.
The matter came up before a bench headed by Chief Justice of India Surya Kant, along with Justices Joymalya Bagchi and V Mohana. The bench was hearing a PIL filed by advocate Anjan Datta challenging the Centre’s September notifications and the new MDR framework.
The court declined interim relief but issued notice to the Centre, the Reserve Bank of India, the National Payments Corporation of India and other respondents. It has sought an affidavit from the Union government before taking up the challenge further.
What Is The New MDR Framework?
The new framework sets a 0.4% MDR on specified person-to-merchant UPI payments above ₹2,000. The charge will be capped at ₹300 for transactions of ₹75,000 and above.
Essential and thin-margin sectors such as railways, telecom, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5.
Capital-market transactions will face a lower MDR of 0.02%. This will also be capped at ₹300 under the notified structure.
What Did The Supreme Court Ask?
The bench focused on the legal basis of the levy. LiveLaw reported that Justice Bagchi asked whether the charge was a tax or a fee and, if it was neither, what executive basis allowed the government to impose it.
The court also referred to Section 269SU of the Income Tax Act, which requires certain businesses to provide electronic payment facilities.
Appearing for the Centre, Additional Solicitor General N Venkataraman told the court that the MDR was neither a tax nor a government fee. He also said the government would not receive any part of the amount.
According to the Centre, the charge was a settlement fee within the payments ecosystem to cover costs incurred by banks and other participants.
Which UPI Transactions Will Remain Free?
The Centre told the court that around 96% of merchant transactions would remain outside the new framework. It also said person-to-person UPI transfers would remain free regardless of the amount transferred.
Merchant payments up to ₹2,000 will remain free. Small merchants receiving up to ₹1 lakh a month through UPI QR codes will also continue under zero-MDR provisions.
What Does The PIL Challenge?
Datta’s plea challenges the statutory basis of the levy, the ₹2,000 threshold and the different treatment given to UPI and RuPay debit-card payments.
The petition argues that the framework could increase costs for merchants and eventually affect consumers if businesses pass on the charge.
The plea also questions the absence of disclosed cost studies and the basis for fixing the ₹2,000 transaction threshold and ₹1 lakh monthly-receipt threshold.
It sought an interim stay, arguing that merchants may move away from UPI or use more cash. The Supreme Court, however, declined to grant interim relief and sought the Centre’s affidavit before proceeding with the challenge.
