SC refuses stay on MDR for UPI merchant payments above Rs 2,000

New Delhi: The Supreme Court on Monday refused to stay the Centre’s decision to impose a Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions above Rs 2,000. The court was hearing a plea challenging the new UPI fee framework.

The MDR regime for UPI transactions was announced on September 15. MDR is a fee paid by merchants to entities that facilitate digital transactions, including banks, payment service providers and third-party applications.

Under the new framework, an MDR of 0.4 per cent will apply to specified person-to-merchant UPI payments above Rs 2,000 from October 15, with certain exceptions. The charge is imposed within the merchant payment ecosystem and is not intended to be levied on customers making UPI payments.

The government has advised banks to ensure that merchants do not pass the MDR on to customers. UPI application providers have also been expressly prohibited from imposing platform fees or hidden charges, according to the Finance Ministry.

During the hearing, Additional Solicitor General N Venkataraman, appearing for the Centre, told the bench that 96 per cent of people using the UPI gateway would remain exempt from the charges.

“It is less a legal and more a technical issue,” the bench observed.

After the court issued notice on the plea, counsel for the petitioner sought a stay on the MDR regime until the responses were filed. The bench, however, declined to grant an interim stay.

The Public Interest Litigation was filed by advocate Anjan Datta, challenging the government’s decision to introduce MDR on certain UPI merchant transactions, according to PTI reports.

The new framework ends nearly six years of zero-MDR UPI payments for specified transactions. Under the framework, a 0.4 per cent MDR will be levied on person-to-merchant UPI payments above Rs 2,000 from October 15.

The charge will be capped at Rs 300 for transactions of Rs 75,000 and above.

Certain essential and thin-margin sectors, including railways, telecom, insurance, fuel and agricultural inputs, will instead attract a flat MDR of Rs 5 per transaction for payments above Rs 2,000.

Transactions involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02 per cent, subject to a maximum cap of Rs 300.

Person-to-person (P2P) UPI transfers will continue to remain free, regardless of the transaction amount. Such transfers account for around 37 per cent of UPI transaction volume and about 70 per cent of its transaction value.

The Centre’s framework thus keeps everyday P2P payments and small-value merchant transactions outside the new charge, while introducing MDR for specified higher-value merchant payments.