Supreme Court to Review Controversial Merchant Discount Rate on UPI Transactions

The Supreme Court is preparing to hear a petition challenging the government's introduction of a Merchant Discount Rate (MDR) on UPI transactions over Rs 2,000. This move, which marks the end of six years of free UPI payments, has raised concerns about its impact on merchants and consumers. The petition argues that the fee was implemented without adequate legal safeguards and transparency. It questions the constitutional validity of the new regulations and seeks to annul the MDR framework. As the hearing approaches, the implications of this decision could significantly affect the digital payment landscape in India.

By Narendra Chaudhary Sep 27, 2026, 12:54 IST

Legal Challenge Against New UPI Fees

New Delhi: The Supreme Court is set to hear a petition on Monday that contests the government's recent decision to implement a Merchant Discount Rate (MDR) on certain UPI transactions exceeding Rs 2,000.

In a significant policy shift after nearly six years of free UPI transactions, the government plans to introduce a 0.4% fee on payments over Rs 2,000 made to merchants via UPI, effective from October 15. However, everyday person-to-person transactions and smaller payments will remain exempt from any charges.

The MDR will be limited to Rs 300 for transactions of Rs 75,000 or more.

Sectors with thin profit margins, such as railways, telecom, insurance, fuel, and agricultural inputs, will incur a flat MDR of Rs 5 for transactions above Rs 2,000.

For investments in mutual funds and securities, a 0.02% MDR will apply, also capped at Rs 300.

Person-to-person (P2P) transfers, which account for 37% of UPI's transaction volume and 70% of its value, will continue to be free of charges, regardless of the amount.

According to the Supreme Court's schedule from September 28, the case will be heard by a bench led by Chief Justice Surya Kant, alongside Justices Joymalya Bagchi and V Mohana.

The public interest litigation (PIL) was filed by advocate Anjan Datta, challenging the government's notification from September 14 and the MDR framework announced on September 15, which is set to take effect on October 15.

The petition claims that the fee was introduced without sufficient legal safeguards, transparency, or public input.

It questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, arguing that it grants excessive powers to the executive to determine which electronic payment methods will be exempt from charges.

"We request that no MDR or similar compulsory fee be imposed based solely on a press release or FAQs without a properly authorized and published statutory instrument," the petition states.

The petitioner also raises concerns about the disparity between UPI transactions and RuPay debit card payments, noting that the notification maintains no-charge protection for RuPay cards without a monetary limit.

The petition argues that the new framework is arbitrary and discriminatory, potentially harming merchants with low profit margins and raising concerns about indirect costs to consumers and digital exclusion.

It seeks to annul or suspend the framework regarding MDR on UPI transactions exceeding Rs 2,000.

Alternatively, it calls for a reassessment of the framework following transparent consultations, publication of data, and an impact assessment, along with protections for micro and small enterprises.

"Future MDR classifications should consider relevant factors such as merchant turnover, MSME status, actual profit margins, geographical location, and cost-bearing capacity, avoiding unsupported cliff-edge treatment," the petition concludes.

The Centre and other parties, including the Reserve Bank of India, have been named as respondents in this case.