The Supreme Court will hear a challenge to India’s recent move to impose a merchant discount rate on certain UPI transactions, raising questions about legal foundations and impact on small businesses.
The Supreme Court is set to hear on Monday a challenge to the Union government’s decision to begin charging a merchant discount rate on some UPI payments, marking a sharp break from nearly six years in which the popular digital transfer system was free for users in merchant transactions.
According to reports from India Today and The Indian Express, the petition questions both the legal foundation of the move and the way it was introduced. The new framework, announced by the government on September 15 and due to take effect on October 15, applies a 0.4 per cent fee to person-to-merchant UPI payments above Rs 2,000, while leaving person-to-person transfers and smaller merchant payments outside the charge.
The matter is listed before a bench headed by Chief Justice of India Surya Kant, with Justices Joymalya Bagchi and V. Mohana also on the bench, according to the court’s cause list for September 28. The plea has been filed by advocate Anjan Datta and challenges the September 14 notification that underpins the levy, as well as the broader MDR framework that followed a day later.
Under the new arrangement, the fee is capped at Rs 300 for payments of Rs 75,000 and above. Reuters-style reporting in the legal press has also noted that essential and thin-margin sectors, including railways, telecoms, insurance, fuel and agricultural inputs, will face a flat MDR of Rs 5 on transactions above Rs 2,000. Payments made into mutual funds, securities and through stockbrokers and dealers will attract a charge of 0.02 per cent, again subject to the same cap.
The petition argues that the government introduced the levy without sufficient statutory safeguards, transparency or public consultation. It also takes aim at the amended Section 10A of the Payment and Settlement Systems Act, 2007, saying it gives the executive too much discretion over which digital payment methods should remain exempt from charges. In one passage cited in the reports, the plea says no compulsory charge should be imposed on the strength of a press release or frequently asked questions alone, without a duly authorised statutory instrument.
Datta has also challenged the distinction being drawn between UPI and RuPay debit card transactions. The plea says the continued no-charge protection for RuPay debit cards, without a monetary ceiling, makes the framework arbitrary and discriminatory. It warns that the new rules could hurt merchants with low margins, shift costs indirectly to consumers and discourage the use of digital payments among smaller businesses.
The filing asks the court to quash or suspend the framework so far as it applies MDR to UPI merchant payments above Rs 2,000. In the alternative, it seeks a fresh review built on public consultation, publication of data and an impact assessment, with special safeguards for micro and small enterprises. It also urges that any future classification of MDR rates should consider merchant turnover, MSME status, actual margins, geography and the ability to absorb transaction costs, rather than imposing what the petition describes as an unsupported cliff edge.
The case now sets up a test of how far the government can go in recasting the economics of UPI, a system that has become central to India’s digital payments landscape. The Centre and the Reserve Bank of India have been made respondents, and the court’s decision will shape not only the future of merchant payments but also the balance between policy support for digital transactions and the commercial realities faced by payment networks and small businesses.
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