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Refuses Stay on UPI MDR Levy, Asks Centre to Explain Basis
The on Monday declined to grant an on the Union Government’s decision to impose a 0.4% Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) person-to-merchant transactions exceeding ₹2,000. A bench led by Chief Justice Surya Kant, along with Justices Joymalya Bagchi and V Mohana, instead directed the government to file an affidavit detailing the legal and policy basis for the levy, which is scheduled to take effect from .
The order came during the hearing of a filed by advocate , challenging the notifications issued by the on and 15 under . The petitioner argued that the new MDR framework was introduced without adequate , , or public consultation, and that it could have a wider impact on consumers as businesses may pass on the additional costs.
Court Questions
During the proceedings, Additional Solicitor General , representing the Centre, submitted that the charge is neither a tax nor a fee, but a shared among participating banks and payment aggregators. He assured the bench that 96% of all UPI transactions would remain exempt, and that charges for essential services have been capped at ₹5 per transaction. “It is neither a tax nor a fee,” the ASG said, adding that the government is not collecting any amount itself.
The bench, however, pressed for clarity. Chief Justice Surya Kant observed, “We need these facts on affidavit. It’s more of a technical issue.” Justice Bagchi then posed a sharp query: “Is it a tax or a fee? If not a fee, what is the executive basis for making this ? What is the service?” When the ASG denied the characterisation of , Justice Bagchi further referred to , which mandates merchants meeting a threshold turnover to provide electronic payment facilities. He questioned the of the charge under the UPI ecosystem.
The bench issued notices to the Centre, the , and the , but refused the petitioner’s request for an . The court directed the respondents to file counter-affidavits within four weeks, after which the matter will be taken up for further hearing.
Details of the MDR Framework
Under the new framework announced by the Finance Ministry, a standard MDR of 0.4% will apply to specified person-to-merchant UPI transactions above ₹2,000. For transactions of ₹75,000 or more, the charge is capped at ₹300 per transaction. However, person-to-person UPI transfers remain free irrespective of the amount, and payments to small merchants receiving up to ₹1 lakh per month through UPI QR codes will also continue to enjoy zero MDR.
Certain essential and thin-margin sectors—including railways, telecommunications, insurance, fuel, and agricultural inputs—will attract a flat MDR of ₹5 for transactions above ₹2,000. Capital market transactions, such as those involving mutual funds, securities, and stock brokers, will see a lower MDR of 0.02%, also capped at ₹300 per transaction.
The government has clarified that MDR is not a tax collected by the state, but a fee distributed within the payment ecosystem among banks and service providers. The Finance Ministry has also advised banks to ensure that merchants do not pass on the charge to consumers, and UPI application providers have been prohibited from imposing platform fees or hidden charges on users under the framework.
Legal and Policy Implications
The ’s refusal to grant an suggests that the bench is not yet convinced of the need for immediate judicial intervention, but is keen to scrutinise the government’s rationale thoroughly. The petitioner’s challenge to the of amended Section 10A of the Payment and Settlement Systems Act raises significant questions about the scope of in regulating digital payment modes. The provision grants the executive broad powers to determine which electronic payment modes remain protected from charges, and the petitioner contends that this violates principles of and .
Justice Bagchi’s pointed questions about the “” of the charge indicate that the court may examine whether the MDR amounts to an or a permissible . The outcome of this case could have far-reaching consequences for the regulatory architecture of India’s digital payments ecosystem, which has largely operated under a zero-MDR framework for nearly six years.
Impact on Legal Practice and the Digital Economy
For legal practitioners, the case presents an opportunity to revisit the boundaries of under the Payment and Settlement Systems Act, as well as the interplay between fiscal measures and fundamental rights under . The petition also highlights the growing tension between promoting digital payments and ensuring cost sustainability for payment system participants.
The refusal to stay the MDR framework means that from , merchants and consumers will begin to experience the new charges, though the government insists that 96% of transactions will remain free. The petitioner has warned that the levy could incentivise black money transactions as businesses seek to avoid the charge. The court’s eventual decision will likely influence how digital payment charges are structured in the future, and whether the government must follow a more consultative and transparent process before imposing such levies.
Conclusion
The has given the Centre four weeks to file its counter-affidavit, after which the bench will hear the matter in detail. While the has been refused, the court’s active questioning suggests it is closely examining the constitutional and statutory basis for the MDR levy. The case marks a critical juncture for India’s digital payments landscape, and its resolution will be closely watched by legal professionals, businesses, and consumers alike.
