Supreme Court to Hear Challenge Against UPI Merchant Fee on Monday

The Supreme Court is scheduled to hear arguments on Monday against the Centre's imposition of a Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions worth more than Rs 2,000. The move represents a significant policy shift for India's digital payment infrastructure, which has operated without transaction charges since its inception.

Effective from October 15, the government introduced a 0.4 per cent fee structure on merchant payments above the Rs 2,000 threshold through the UPI platform. The MDR has been capped at Rs 300 for transactions of Rs 75,000 and above. The administration has explicitly exempted person-to-person transfers and smaller payments from any charges, citing their continued importance to the financial system.

Certain essential sectors have been granted preferential treatment under the new regime. Railways, telecom, insurance, fuel and agricultural inputs will pay a flat MDR of Rs 5 per transaction exceeding Rs 2,000. Financial sector transactions, including mutual fund investments and securities purchases made through stockbrokers and dealers, will attract a lower MDR of 0.02 per cent, also subject to the Rs 300 cap.

Person-to-person transfers, which account for 37 per cent of UPI's transaction volume and 70 per cent of its transaction value, will remain exempt from charges. The petitioners challenging the fee structure are expected to argue that the MDR may adversely impact merchant adoption and the broader digital payments ecosystem in India.