Supreme Court to hear challenge against 0.4% MDR on UPI payments above Rs 2,000 tomorrow

27 September, 2026
Supreme Court to hear challenge against 0.4% MDR on UPI payments above Rs 2,000 tomorrow

Winning Bizness Desk

Mumbai.Supreme Court to hear challenge against 0.4% MDR on UPI payments above Rs 2,000 tomorrow

The Supreme Court will hear on September 28 a public interest litigation challenging the proposed levy on certain UPI transactions. The petition seeks cancellation of the decision to impose a 0.4 per cent Merchant Discount Rate (MDR) on UPI payments above Rs 2,000 under specified conditions.

The new system is scheduled to come into effect from October 15. The petition questions the legal basis of the proposed charge and the distinction between UPI payments and RuPay debit card transactions.

Three-judge bench to hear UPI charges case

According to the Supreme Court cause list, the matter will be heard by a three-judge bench headed by Chief Justice of India Surya Kant.

Justices Joymalya Bagchi and V Mohana are the other members of the bench. The public interest litigation has been filed by advocate Anjan Dutta. The petition challenges both the proposed fee and provisions under the Payment and Settlement Systems Act, 2007.

Petition questions government’s power to levy fees

The petitioner has argued that the fee was fixed without adequate public consultation and without framing a specific regulatory framework for the proposed levy.

The petition also challenges Section 10A of the Payment and Settlement Systems Act, 2007. According to the plea, the provision gives the government wide discretion to decide which digital payment methods should remain free and which should attract charges.

UPI and RuPay treatment challenged in court

A key issue raised in the petition is the difference in treatment between UPI and RuPay debit card payments. The petitioner has pointed out that the zero-charge arrangement continues for payments made through RuPay debit cards, while UPI transactions above Rs 2,000 would attract the proposed fee under specified conditions.

The plea describes this distinction as arbitrary and says it could increase costs for small businesses operating on low margins.

New UPI rules will affect larger merchants

Under the proposed system, the charge will depend on a merchant’s monthly UPI collection as well as the value of an individual transaction.

The key provisions include:

  • Merchants collecting more than Rs 1 lakh through UPI in a month will pay 0.4 per cent MDR plus GST on eligible payments above Rs 2,000.
  • Merchants with monthly UPI collections of up to Rs 1 lakh will continue to get free UPI transactions, including payments above Rs 2,000.

Small merchants can remain outside charge regime

Small merchants will not face the proposed charge as long as their total monthly UPI collection remains within Rs 1 lakh.

However, the category can change if a merchant crosses the threshold consistently.

  • If a merchant receives more than Rs 1 lakh through UPI for three consecutive months, the bank can move the merchant into the larger-merchant category.
  • The MDR will then apply to eligible transactions above Rs 2,000.

Payments up to Rs 2,000 remain completely free

The proposed framework also keeps smaller individual payments outside the MDR system. Even merchants classified as larger businesses will not have to pay the charge on UPI payments of Rs 2,000 or less.

The Rs 2,000 threshold will be considered separately for every payment or bill. It will not be calculated by adding all transactions made during the day. The rules also prescribe a maximum charge for larger transactions. For a payment of Rs 75,000 or more, the MDR payable by the merchant will be capped at Rs 300, along with applicable GST.

What MDR means for merchants and customers

Merchant Discount Rate, or MDR, is the fee paid by a merchant for accepting digital payments through systems such as cards or UPI. The amount is paid by the merchant to banks and payment service providers for the payment infrastructure and related services. Importantly, MDR is a charge on the merchant rather than a direct fee collected from the customer.

The Supreme Court's September 28 hearing will examine the legal challenge to the proposed UPI fee and the provisions under which the government has been empowered to determine charges for digital payment systems.