In a significant development for digital payments in India, the Supreme Court has refused to issue a stay on the implementation of the Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions exceeding ₹2,000. The apex court, however, has issued notices to the central government, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI), demanding a clear explanation of the legal foundation for these charges.
Court Seeks Legal Basis for UPI MDR
A bench comprising Chief Justice of India Surya Kant, alongside Justices Joymalya Bagchi and V Mohana, heard a plea challenging the Centre's decision to levy MDR on specific person-to-merchant UPI transactions above ₹2,000. While declining to halt the charges, the court emphasized the need for transparency regarding their legal standing.
Additional Solicitor General N Venkataraman, representing the government, argued before the Supreme Court that the UPI MDR is neither a tax nor a fee. He clarified that it functions as a 'settlement fee' among the various players in the payment ecosystem, facilitated by NPCI, and that the government itself does not collect any revenue from it. Venkataraman also highlighted that approximately 96 percent of UPI gateway users remain exempt from these new norms, with essential services capped at a minimal ₹5 per transaction.
Understanding the New UPI MDR Structure
The government's decision, effective from October 15, ended nearly six years of entirely free UPI payments for certain transaction types. The new policy introduces a 0.4 percent fee on transfers exceeding ₹2,000 made by individuals to merchants via the UPI platform. Crucially, everyday person-to-person transactions and small payments continue to be free of charge.
Key aspects of the MDR structure include:
- General Cap: The Merchant Discount Rate is capped at ₹300 for single payments of ₹75,000 and above.
- Essential Services: Sectors deemed essential or operating on thin margins, such as railways, telecom, insurance, fuel, and agricultural inputs, will incur a flat MDR of ₹5 per transaction for amounts over ₹2,000.
- Financial Investments: Payments related to mutual funds, securities, and those made through stockbrokers and dealers will attract a 0.02 percent MDR, also capped at ₹300.
Justice Joymalya Bagchi questioned the Additional Solicitor General on the character of the MDR if it wasn't a fee, noting that it represented a charge on a significant portion of India's population. Chief Justice Surya Kant directed the government to formally present these details via an affidavit, labeling the matter as primarily a “technical issue” requiring clear legal articulation.