The Supreme Court will on Monday (September 28, 2026) hear a plea challenging the Centre’s decision to impose a Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions of over ₹2,000.

Ending nearly six years of fully free UPI payments, the government has introduced a 0.4% fee on transfers worth over ₹2,000 made to merchants through the UPI platform from October 15 while explicitly ring-fencing everyday person-to-person transactions and small payments from any charge.

The MDR will be capped at ₹300 for payments of ₹75,000 and above.

Essential and thin-margin sectors — railways, telecom, insurance, fuel, and agricultural inputs — will pay a flat MDR of ₹5 per transaction above ₹2,000.

Payments into mutual funds, securities, and through stockbrokers and dealers will attract 0.02% MDR, also capped at ₹300.

Person-to-person (P2P) transfers — which make up 37% of UPI’s transaction volume and 70% of its transaction value — will continue to attract zero charges, irrespective of size.

According to the apex court’s cause list of September 28, the plea would come up for hearing before a bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V. Mohana.

The public interest litigation (PIL) filed by advocate Anjan Datta has challenged the Centre’s September 14 notification and the MDR framework announced on September 15, which is stated to come into effect from October 15.

The plea alleged that the levy has been introduced without adequate statutory safeguards, transparency or public consultation.

It challenges the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, alleging that it gives unguided powers to the executive to decide which electronic payment modes would receive the no-charge protection.

“Declare that no MDR or analogous compulsory charge may be imposed or recovered merely on the strength of a press release or FAQs absent a duly authorised, authenticated and published statutory instrument,” it said.

The petitioner has also questioned the distinction between UPI transactions and RuPay debit card payments, pointing out that the notification continues the no-charge protection for RuPay debit cards without a monetary ceiling.

The plea alleges that the framework is arbitrary and discriminatory, and may adversely affect merchants, particularly those with low margins, while also raising concerns over possible indirect consumer burden and digital exclusion.

It has sought the quashing or suspension of the framework insofar as it imposes an MDR on UPI transactions of above ₹2,000.

Alternatively, it has sought a reconsideration of the framework after transparent consultation, publication of empirical data and an impact assessment, besides safeguards for micro and small enterprises.

“Direct that any future MDR classification be based on relevant considerations including merchant turnover, statutory MSME status, actual margins, geography and ability to bear the cost, and avoid cliff-edge treatment unsupported by evidence,” the plea said.

It has made the Centre and others, including the Reserve Bank of India, as party respondents in the matter.

The Merchant Discount Rate (MDR) on UPI will not be enough to cover the cost of running and maintaining the payment platform, and so the government will soon hold discussions with the Indian Banks’ Association (IBA) to decide on what quantum of the ongoing government subsidy should continue and in what form, sources in the Ministry of Finance have confirmed.

The Ministry of Finance will also coordinate with the IBA on how to ensure that merchants do not pass on the MDR charge to customers. The MDR charge will go live on UPI on October 15, and there is no proposal to delay this date, the sources said. 

The government has budgeted ₹2,000 crore for the ongoing financial year under its incentive scheme for the promotion of RuPay Debit Cards and low-value BHIM-UPI transactions.

Coordination with banks, merchants

“The MDR amount that will be collected will not be enough to cover the full cost of UPI,” a senior official in the Ministry said on condition of anonymity. “As for the incentive the government is already providing, we will need to discuss with the IBA on how much should continue and how.”

“We will also be speaking to the IBA in the run-up to October 15 to work out ways in which it can be ensured that the merchants do not pass on the MDR to customers,” the official added. 

Separately, the Finance Ministry will also be speaking to traders and their umbrella body, the Confederation of All India Traders (CAIT), to explain the MDR charge to them and explain how most merchants will not be affected, and so should not stop accepting UPI. 

Issue for GST Council

Another official said that the Ministry of Finance could not “unilaterally” decide on the issue of a levy of Goods and Services Tax on the MDR amount collected by payment processors and banks from merchants. 

“UPI is a service, and the MDR is the charge for providing that service to merchants,” the second official explained. “As such, that service is taxed under GST. But it is for the GST Council to decide on the rate, how much, whether to exempt and all that. The Centre cannot unilaterally take those actions.”

The second official, however, clarified that the upcoming GST Council meeting on October 7 will be related to process reforms rather than “any sort of rate issue”. 

Also Read | Complex priorities: On UPI transactions, MDR charges

Petroleum dealer problems

Both officials confirmed that the Ministry of Petroleum will be engaging with the petroleum dealers and their associations to work on their issues regarding MDR. The dealers’ associations have voiced their concerns about the charge and have asked for a waiver. 

“The MDR issue for the dealers is that it will impact their profit margins, and so they have used this as a reason to ask for a review of the margin amount that is decided by them and the Petroleum Ministry,” one of the officials explained. “The Petroleum Ministry will be taking this up with them.”

There is no proposal to waive MDR for them, the officials added.