The National Payments Corporation of India has formally informed the Supreme Court of India that merchants are strictly barred from passing on the Merchant Discount Rate charges to their customers under the newly implemented Unified Payments Interface pricing framework. This clarification comes as the apex court evaluates a petition challenging the government’s recent decision to introduce a fee structure for specific high-value transactions, marking a significant transition in the nation’s digital payment landscape.

The affidavit, filed on November 3, 2026, serves as a direct response to concerns raised regarding the potential for indirect financial burdens on consumers. The regulatory body emphasized that the prohibition against shifting these transaction costs is not merely a policy suggestion but a mandatory directive supported by rigorous contractual obligations. According to the filing, any failure by payment service providers or application providers to enforce this prohibition would constitute a breach of their binding service-level agreements, potentially exposing them to severe compliance actions, including the termination of their UPI membership and operational facilities.

This development follows a September 2026 petition filed by advocate Anjan Datta, which questioned the legitimacy of amendments introduced through the Taxation and Other Laws (Amendment) Act, 2026, and the subsequent notification from the Ministry of Finance. While the petitioner sought an interim stay on the revised MDR framework, the Supreme Court, led by a bench headed by Chief Justice Surya Kant, declined to suspend the policy pending a deeper investigation into the structural necessity of the new charges.

Maintaining the Zero-Cost Promise for Retail Users

The core of the revised UPI framework centers on a nuanced approach to transaction fees. The new pricing structure applies exclusively to a small fraction of person-to-merchant transactions that exceed the threshold of ₹2,000. Estimates provided by the National Payments Corporation of India suggest that approximately 96 percent of all person-to-merchant transactions remain entirely unaffected by the change, either because they fall below the specified value or because they are conducted through smaller merchants categorized under the zero-MDR scheme.

The National Payments Corporation of India explicitly noted in its submission that the narrow scope of the charge is intended to minimize the impact on general consumer pricing. By focusing only on transactions that constitute roughly 0.4 percent of total merchant-related volume, the framework seeks to balance the need for ecosystem sustainability without creating a widespread price recalibration. Small merchants, defined by specific turnover criteria, continue to enjoy full exemptions, ensuring that the digitizing impulse for micro-enterprises remains undeterred by the updated regulations.

Contractual Enforcement as the Shield Against Hidden Fees

The central concern of the Supreme Court, and by extension the petitioner, involved the potential for merchants to quietly inflate prices to offset the 0.4 percent MDR incurred on higher-value digital payments. To counter this, the regulator highlighted that its directive against cost-shifting is baked into the legal architecture governing the payment system. As stated in the affidavit, “non-compliance by a Payer PSP or TPAP with the NPCI Circular's directive against passing on MDR to customers constitutes a breach of the binding obligation under the SLAs to abide by all circulars, orders, directions and instructions issued by the Answering Respondent.”

This contractual mechanism effectively turns a policy mandate into an enforceable obligation. Because the payment service providers and application providers are contractually bound to the directives of the national body, the risk of losing their ability to operate on the platform acts as a powerful deterrent against facilitating or ignoring instances where a merchant might attempt to pass on fees. By framing the issue this way, the regulator has moved to dispel apprehensions that the consumer is left vulnerable to indirect inflation, asserting that such concerns are essentially unfounded due to the robust enforcement mechanisms already in place.

Structural Sustainability in a Digitally Driven Economy

The push for a revised fee structure originates from the reality of maintaining a massive, high-frequency digital infrastructure. For nearly six years, the system operated on a fully free model; however, the National Payments Corporation of India has argued that this created a growing structural gap between the costs of operations and the revenue required for long-term investment. The billions of monthly transactions occurring across the nation require constant, sustained capital deployment into technological innovation, robust cybersecurity defenses, fraud prevention systems, and around-the-clock customer support services.

The revised framework introduces a capped fee of ₹300 for payments totaling ₹75,000 and above, while essential sectors—such as telecommunications, insurance, fuel, and agricultural inputs—are subject to a flat fee of ₹5 per transaction for amounts exceeding the ₹2,000 mark. Furthermore, the regulatory body is promoting a dedicated fund specifically designed to incentivize and facilitate UPI adoption among small merchants with an annual turnover of up to ₹20 lakh. This multidimensional approach aims to ensure that while the largest and most frequent users of the high-value payment infrastructure contribute to its maintenance, the basic utility of digital payments for the vast majority of citizens remains entirely free of charge.

As the matter remains under the consideration of the Supreme Court, the current procedural stance dictates that the revised MDR framework remains in active operation. The court’s focus has now shifted toward assessing the technical merits of the underlying statutory amendments and the long-term feasibility of the sustainability model proposed by the government. The next hearing is expected to further clarify the extent to which these contractual safeguards can realistically prevent consumer-level price distortions, with stakeholders and legal experts closely monitoring the court's stance on the intersection of technological utility and commercial regulation.