The Supreme Court has refused to put an interim stay on the new Merchant Discount Rate framework for specified UPI person-to-merchant transactions above ₹2,000, while seeking responses from the Centre, Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI).
The development came during Monday's hearing on a petition challenging the new UPI MDR framework. The court has given the concerned authorities four weeks to respond. The bench also examined questions concerning the legal and technical basis of the payment mechanism.
The immediate significance is that the proposed framework has not been stopped by the court at this stage. It remains scheduled to take effect from October 15, 2026, unless there is a subsequent change through the legal process or by the authorities.
Under the framework announced earlier this month, a 0.4% MDR will apply to specified person-to-merchant UPI transactions above ₹2,000. For eligible transactions of ₹75,000 or more, the MDR is capped at ₹300. Certain essential and thin-margin sectors have a separate flat ₹5 structure, while specified capital-market transactions have a lower rate.
A critical point for ordinary UPI users is that the MDR is structured as a merchant-side payment ecosystem charge, not a direct fee imposed on consumers. The government's framework states that person-to-person UPI payments will remain free, while P2M payments up to ₹2,000 will also remain free.
Editorial Analysis
Why This Matters
UPI has become a major part of India's everyday payment system, so any change to its merchant economics has implications for businesses, payment companies and the wider digital-payments ecosystem. The immediate distinction is important: MDR is not the same as a consumer transaction fee. Person-to-person UPI transfers remain free, and merchant payments up to ₹2,000 remain outside the standard MDR framework. The dispute before the court is focused on the structure and legal basis of the new merchant-side mechanism. The court's decision to seek detailed responses also means the legal position could evolve as the proceedings continue.
For example, if an eligible merchant transaction of ₹5,000 attracts the standard 0.4% MDR, the MDR amount would be ₹20. The framework does not prescribe that this amount should be directly collected from the customer.
The government has also stated that banks should ensure merchants do not pass MDR costs on to customers and that UPI applications cannot impose hidden platform charges on users under the framework.
The Supreme Court's decision therefore does not mean that UPI users will suddenly start paying a fee for sending money to another individual. The immediate legal dispute concerns the framework governing specified merchant transactions.
The court's request for responses now shifts attention to the government's explanation of the framework's legal and technical basis. According to the government's position reported during the hearing, MDR is not a tax collected by the government but a service charge within the payment ecosystem involving participating entities.
The next stage will depend on the responses filed by the Centre, RBI and NPCI and any subsequent directions from the court.
