PIL In Supreme Court Challenges Charges On UPI Merchant Payments Above ₹2,000

A Public Interest Litigation has been filed before the Supreme Court challenging the 0.4% charge on specified UPI merchant payments above ₹2,000.

The petition, filed by Advocate Anjan Datta, challenges the September 14, 2026, Gazette notification issued under Section 10A of the Payment and Settlement Systems Act, 2007, as amended by the Taxation and Other Laws (Amendment) Act, 2026.

It also challenges the Merchant Discount Rate (MDR) framework announced by the Ministry of Finance on September 15, which is proposed to take effect from October 15.

Under the framework, a 0.4% MDR will apply to specified Person-to-Merchant (P2M) UPI transactions above ₹2,000. The MDR is capped at ₹300 per transaction for payments of ₹75,000 and above.

Transactions above ₹2,000 in specified essential and thin-margin sectors, including railways, telecommunications, insurance, fuel, and agricultural inputs, will attract a flat ₹5 MDR. Capital-market transactions will attract an MDR of 0.02%, capped at ₹300.

Person-to-Person (P2P) transactions will remain free, while small merchants receiving up to ₹1 lakh per month through UPI QR codes will remain exempt from MDR. The framework also directs banks to ensure that merchants do not pass the MDR on to customers and bars UPI application providers from imposing platform or hidden fees.

The September 14 notification provides no-charge protection to RuPay-powered debit cards without a monetary ceiling, while limiting the protection for UPI transactions to payments up to ₹2,000. The petitioner argues that the distinction between the two payment modes violates Article 14 of the Constitution.

According to the plea, both modes serve overlapping consumer and merchant groups, and the classification does not have an intelligible differentia with a rational connection to the objective of Section 10A.

The petition also questions the manner in which the MDR rates were prescribed. It states that the September 14 notification does not itself specify an MDR rate, formula, ceiling, consultative mechanism, or other guideline governing the rate, manner, or timing of any MDR.

The detailed rates and classifications were subsequently set out in the September 15 Ministry of Finance press release. The petitioner contends that, to the petitioner's knowledge, no corresponding notification, rule or order prescribing the specific rates, caps or sectoral classifications had been published in the Official Gazette.

The plea seeks disclosure of the complete record underlying the framework, including the legal basis for the UPI and Services Steering Committee's role, its decision and minutes, and the basis on which an NPCI-headed body could prescribe rates and their distribution among payment ecosystem participants.

The petitioner has separately challenged amended Section 10A of the PSS Act. According to the petition, the 2026 amendment replaced the earlier statutory linkage with a provision empowering the Central Government to decide, through notification, which prescribed electronic modes would receive no-charge protection.

The plea argues that Section 10A does not itself prescribe the MDR rates or lay down a formula, ceiling, or mechanism for determining them. It also questions the delegation of rate-making and classification decisions to an NPCI-headed body without, according to the petitioner, clear legislative standards, publication, and regulatory safeguards.

The petition also invokes Article 19(1)(g), arguing that the MDR directly affects merchants' receipts and imposes a burden on those outside the exempted categories. It challenges the ₹1 lakh monthly threshold for small merchants as well as the different sectoral rates and transaction thresholds, contending that their empirical or rational basis has not been disclosed.

The petitioner has sought quashing of the September 14 notification and the consequential MDR framework insofar as they permit MDR on UPI transactions above ₹2,000.

It has also sought a declaration that Section 10A, as amended by the 2026 amendment Act, is unconstitutional and void.

Alternatively, the petition seeks a fresh review of the framework after consultation. It also seeks publication of the data and impact assessment, along with safeguards for small businesses.

The petition has been drawn and drafted by Advocate on Record Ashutosh Dubey.