A Public Interest Litigation (PIL) has been lodged in the Supreme Court of India, directly challenging the central government's recent decision to implement a Merchant Discount Rate (MDR) on specific UPI (Unified Payments Interface) transactions. The new framework, announced on September 15 and effective from October 15, applies to person-to-merchant (P2M) transactions surpassing ₹2,000.
Advocate Anjan Datta filed the plea, which specifically targets the Centre's notification dated September 14. The petitioner contends that the new MDR structure is constitutionally questionable and lacks adequate transparency.
Understanding the New UPI MDR Framework
Under the contested framework, a 0.4 percent MDR will be levied on general P2M UPI transactions exceeding ₹2,000. This charge is capped at ₹300 for transactions valued at ₹75,000 or more. Notably, UPI payments up to ₹2,000 will continue to remain free of any MDR.
However, specific essential sectors with thin margins, such as railways, telecommunications, insurance, fuel, and agricultural inputs, will face a flat MDR of ₹5 for transactions above ₹2,000. Capital market transactions will incur a 0.02 percent MDR, also capped at ₹300.
Important exemptions within the framework include:
- Person-to-person (P2P) UPI transfers will remain free.
- Small merchants receiving up to ₹1 lakh per month through UPI QR codes are exempt from the proposed MDR.
Constitutional and Transparency Concerns
The PIL specifically challenges the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007. The petitioner argues that this provision grants the executive unchecked powers to determine which electronic payment methods should be protected from charges.
Further questions have been raised regarding the methodology used to determine transaction thresholds, MDR rates, caps, and the sector-specific classifications. The plea alleges a lack of transparency, stating that the complete operative instrument prescribing these charges has not been published in the Official Gazette, and the framework was announced without sufficient public consultation.
Distinction with RuPay Debit Cards
Another key point of contention in the petition is the differential treatment between UPI and RuPay debit card transactions. The petitioner highlights that the notification continues to protect RuPay debit card transactions from charges without imposing any monetary ceiling, a protection not extended equally to UPI transactions under the new MDR.
The plea asserts that the new framework is both arbitrary and discriminatory, potentially disproportionately affecting merchants operating on narrow margins. Concerns have also been voiced about the possibility of these additional costs being passed on to consumers indirectly, which could, in turn, impede the broader adoption of digital payments across the country.