Supreme Court PIL Challenges 0.4% MDR on UPI Payments Above ₹2,000

A public interest litigation has been filed in the Supreme Court challenging the Union government's decision to impose a merchant discount rate (MDR) on specified UPI person-to-merchant transactions above ₹2,000, contending that the levy has been introduced without adequate statutory safeguards, transparency or public consultation.

MDR is the fee a merchant pays to banks and payment service providers for accepting a digital payment. Under the framework notified by the Centre, a rate of 0.4 per cent applies to general person-to-merchant UPI transactions of more than ₹2,000 from October 15. UPI transactions of up to ₹2,000, and all person-to-person transfers, remain free of charge. For transactions of ₹75,000 and above, the MDR is capped at ₹300.

In specified essential and thin-margin sectors — railways, telecommunications, insurance, fuel and agricultural inputs — a flat ₹5 MDR applies to transactions above ₹2,000. Capital-market transactions attract an MDR of 0.02 per cent, capped at ₹300. Small merchants who receive up to ₹1 lakh a month through UPI QR codes are exempted.

The plea has been filed by advocate Anjan Datta. It challenges the Centre's notification of September 14 and the MDR framework announced on September 15, which was to take effect from October 15.

Central to the petition is a challenge to the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007. The petitioner argues that the provision gives unguided powers to the executive to decide which electronic payment modes will receive no-charge protection.

The petition also questions the manner in which the rates, transaction thresholds, caps and sectoral classifications were fixed. According to the petitioner, these were set out through a press release, and the complete operative instrument prescribing the charges has not been published in the Official Gazette.

A further objection concerns the distinction drawn between UPI transactions and RuPay debit-card payments. The petitioner points out that the notification continues no-charge protection for RuPay debit cards without any monetary ceiling, while imposing MDR on UPI payments above ₹2,000.

The plea describes the framework as arbitrary and discriminatory, and contends that it may adversely affect merchants, particularly those operating on low margins. It also raises concerns about a possible indirect burden on consumers and about digital exclusion.

The petitioner has sought the quashing or suspension of the framework insofar as it imposes MDR on UPI transactions above ₹2,000. In the alternative, the plea seeks a reconsideration of the framework after transparent consultation, publication of empirical data and an impact assessment, along with safeguards for micro and small enterprises. It also asks for an independent review by the Reserve Bank of India and the Union government.

The Supreme Court has not issued any direction in the matter so far. The contentions set out above are those of the petitioner and remain to be examined. The measure follows an announcement in the Union Budget for 2025-26 that MDR would be permitted on UPI transactions for merchants — a departure from the earlier position under which such payments carried no charge for merchants, with the Centre supporting the ecosystem through incentive schemes funded by the exchequer.