BREAKING | Supreme Court Refuses To Stay Charges On UPI Merchant Transactions Above ₹2,000
The Supreme Court on Monday refused to stay the Centre's decision to impose a 0.4% Merchant Discount Rate (MDR) on specified UPI merchant transactions above ₹2,000, while seeking the Union government's response to a challenge against the proposed charges.
A Bench of Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana said it needed the relevant facts on affidavit.
“We need these facts on affidavit. It's more of a technical issue,” the court ordered.
The court also issued notices to RBI and the NPCI while refusing any stay on the charges.
The petition challenges the Union Finance Ministry's September 14, 2026 Gazette notification issued under Section 10A of the Payment and Settlement Systems Act, 2007, and the September 15 MDR framework proposed to take effect from October 15, 2026.
The plea raises questions over the legal basis and executive power to impose the proposed charges. During the hearing, counsel for the petitioner submitted that the introduction of UPI had significantly reduced black-money transactions.
Additional Solicitor General Venkataraman, appearing for the Union Government, said the framework had not yet fully come into operation and that October 15 would be the first milestone. He submitted that 96% of transactions through payment gateways were exempt and that essential services were subject to a ₹5 cap.
“It's yet to come. October 15 is the first milestone. Ninety-six percent using gateways are exempt. Amongst the [categories], essential services are capped at ₹5. There's a value cap. It is not a tax or fee.”
Justice Joymalya Bagchi questioned the legal character of the proposed charge and the scope of the executive power involved.
“What is the executive scope of making this expropriation? We would have understood if it was a fee. It's not a fee, then what is the character? Charge of 1% on 140 crore Indians...”, he asked.
The ASG however, submitted that the charge was not a levy collected by the government but a settlement fee within the payment ecosystem. He drew a comparison with charges associated with debit and credit card transactions.
“There is a cost for doing debit/credit card transactions. UPI is not different. Two operators provide the service. One are the banks. It is not statutory collection by the Government of India. It's a settlement fee amongst the players, which NPCI facilitates. Government is not taking a rupee of this.”
Under the framework, 0.4% MDR would apply to specified P2M UPI transactions above ₹2,000, while certain essential sectors would attract a flat ₹5 charge. P2P transactions and eligible small merchants would remain exempt.
The petitioner has also challenged the distinction between RuPay debit-card transactions and UPI payments, arguing that limiting the no-charge protection for UPI to ₹2,000 violates Article 14. The plea further questions the notification for not prescribing the MDR rate, formula, ceiling or consultative mechanism.
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.