The Supreme Court is reviewing a petition challenging the government's introduction of a Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000. This new charge, set at 0.4% for commercial transactions for merchants earning over ₹1,00,000 monthly, and a flat ₹5 fee for essential services, aims to generate revenue for banks and payment providers. The government maintains that the majority of users will not be impacted, as 96% of transactions fall below the threshold. However, concerns remain about the potential impact on small merchants and indirect charges to consumers. The apex court has mandated that the Centre, Reserve Bank of India, and National Payments Corporation of India provide a detailed affidavit clarifying the rationale and nature of these transaction fees.

The Supreme Court is reviewing a petition challenging the government's introduction of a Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000. This new charge, set at 0.4% for commercial transactions for merchants earning over ₹1,00,000 monthly, and a flat ₹5 fee for essential services, aims to generate revenue for banks and payment providers. The government maintains that the majority of users will not be impacted, as 96% of transactions fall below the threshold. However, concerns remain about the potential impact on small merchants and indirect charges to consumers. The apex court has mandated that the Centre, Reserve Bank of India, and National Payments Corporation of India provide a detailed affidavit clarifying the rationale and nature of these transaction fees.

The Supreme Court is reviewing a petition challenging the government's introduction of a Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000. This new charge, set at 0.4% for commercial transactions for merchants earning over ₹1,00,000 monthly, and a flat ₹5 fee for essential services, aims to generate revenue for banks and payment providers. The government maintains that the majority of users will not be impacted, as 96% of transactions fall below the threshold. However, concerns remain about the potential impact on small merchants and indirect charges to consumers. The apex court has mandated that the Centre, Reserve Bank of India, and National Payments Corporation of India provide a detailed affidavit clarifying the rationale and nature of these transaction fees.

The Supreme Court on Monday refused to stay a petition challenging the government’s plan to introduce a Merchant Discount Rate (MDR) on UPI payments above ₹2,000. The plea was filed against the Union government, the Reserve Bank of India and the National Payments Corporation of India (NPCI).

Advocate Anjan Datta had challenged the Gazette notifications issued by the Union Ministry of Finance on September 14 and 15, which announced that a 0.4 per cent MDR will apply to all commercial transactions above the ₹2,000 limit.

The MDR will apply to all merchants that earn more than ₹1,00,000 in a month. Essential services, such as railways, telecom, fuel and insurance will attract a flat fee of ₹5 per transaction. 

The UPI MDR is expected to generate significant profits for the banking sector and third-party application providers (TPAP), as the fee will be split between the issuing bank, acquiring bank, TPAP and Payer Payment Service provider. However, it raised fresh concerns about the fee affecting profit margins for small merchants and the charges being indirectly imposed on regular users. 

Additional Solicitor General (ASG) N Venkataram defended the Centre, highlighting that 96 per cent of the transactions will not face the charge as they remain below the ₹2,000 threshold. He added that even for the 4 per cent of transactions, charges for essential services are capped at ₹5 and that the changes will only take effect from October 15. 

A bench comprising Justices Joymalya Bagchi and V Mohana, headed by the Chief Justice of India (CJI) Surya Kant, while hearing the petition, asked the Union Government to explain the reasoning behind the move to levy charges on person-to-merchant transactions. 

According to a Livelaw report, the bench asked, “Is it tax or a fee? If not a fee, what is the executive basis for making this expropriation? What is the service?"

ASG Venkataram explained that not even one rupee from this will go to the government. "It is a settlement fee among the two players – the bank and the service provider which the NPCI facilitates,” he said. 

The SC directed the Centre, the RBI and the NPCI to officially file an affidavit explaining the absolute factual basis for the charges, saying, “We need these facts on affidavit. It's more of a technical issue.”

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