The Supreme Court has refused to put an interim stay on the Centre's decision to introduce charges on specified UPI payments above Rs 2,000, leaving the new framework on course for its proposed October 15 implementation. The case has attracted significant attention because it concerns India's widely used digital payment system and the proposed introduction of a Merchant Discount Rate, or MDR, on certain higher-value payments made to merchants. While the court did not stop the framework at this stage, it has asked the Centre, the Reserve Bank of India and the National Payments Corporation of India to respond to the legal challenge. The respondents have been given four weeks to file their counter affidavits.

Supreme Court Seeks Explanation From Centre

A three-judge bench headed by Chief Justice of India Surya Kant and comprising Justices Joymalya Bagchi and V Mohana heard the matter on Monday. The petition challenges the Centre's decision to introduce MDR on specified person-to-merchant, or P2M, UPI transactions above Rs 2,000. The court has asked the Centre to place the relevant facts and material before it through an affidavit. The RBI, NPCI and other concerned parties have also been directed to respond. The petition has raised questions about the statutory basis and methodology behind the new framework. The court's decision to seek detailed responses means the legal challenge will continue, even though the requested interim relief has not been granted.

What Is The New UPI MDR Framework?

Under the new system, a 0.4 per cent Merchant Discount Rate is proposed for specified UPI transactions above Rs 2,000 when the payment is made to a merchant. The framework is different from a blanket charge on all UPI payments. Person-to-person transfers remain outside the new MDR structure. Similarly, merchant payments up to Rs 2,000 will continue without MDR under the framework. The proposed charge is also structured differently for certain sectors and categories of transactions. The new regime is scheduled to take effect from October 15, subject to any further developments in the ongoing legal proceedings.

Will Customers Have To Pay The New Charge?

One of the most important points in the new system is that the MDR is designed as a merchant-side charge rather than a direct fee collected from the consumer. For example, if an eligible customer makes a Rs 5,000 payment to a merchant through UPI, the proposed 0.4 per cent MDR would work out to Rs 20. Under the framework, that cost is to be borne within the merchant payment ecosystem rather than being directly charged to the person making the payment. The Centre has also told the court that the government itself would not receive the money. Additional Solicitor General N Venkataraman described the arrangement as a settlement mechanism between participants in the payment ecosystem.

Rs 300 Maximum Charge For Large Transactions

The framework includes a ceiling so that the MDR does not continue increasing indefinitely with the transaction amount. For eligible transactions of Rs 75,000 and above, the general MDR will be capped at Rs 300. This means the percentage-based calculation will not result in a charge higher than the prescribed maximum for those transactions. The structure is intended to distinguish ordinary merchant payments from larger transactions while keeping a ceiling on the amount payable under the MDR framework.

Small UPI Payments Will Remain Free

The new system does not apply the MDR to every merchant payment. Transactions of Rs 2,000 or below will remain outside the proposed charge. The government has also told the Supreme Court that a large majority of users will remain exempt from the new framework. Additional Solicitor General N Venkataraman told the bench that 96 per cent of people using the gateway were exempt. This means the change is specifically focused on a defined category of higher-value merchant payments rather than everyday low-value UPI transactions.

Person-To-Person UPI Payments Remain Free

People sending money to friends, relatives or other individuals will continue to use UPI without the new MDR, irrespective of the amount involved. The proposed framework focuses on person-to-merchant payments, where a customer is paying a business. This distinction is important because UPI is used for both personal transfers and commercial payments. The new framework does not treat these two categories in the same way. As a result, sending a large amount to another individual through UPI is not the same as making an eligible high-value payment to a merchant.

Special Rules For Essential Services

The framework also provides separate treatment for certain sectors where profit margins can be relatively narrow. Railways, telecom services, insurance, fuel and agricultural inputs have been placed under a separate category. For eligible transactions above Rs 2,000 in these sectors, the MDR has been set at a flat Rs 5 per transaction rather than the standard 0.4 per cent rate. This means the calculation for these essential and specified sectors will differ from the general merchant category.

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Different Rate For Mutual Funds And Securities

The framework also includes a separate MDR structure for payments involving mutual funds, securities, stockbrokers and dealers. These transactions will attract an MDR of 0.02 per cent, with the maximum charge again capped at Rs 300. The different rates indicate that the government has created separate categories rather than applying one uniform charge to every high-value merchant payment.

Why Was The Framework Challenged?

The legal challenge has been filed by advocate Anjan Datta. The petition questions the way the MDR framework was introduced and challenges the legal basis for imposing the charge on specified UPI transactions. Among the issues raised are the Rs 2,000 threshold, the classification of merchants, the different rates for various sectors and the overall structure for distributing the MDR among participants in the digital payments ecosystem. The petition also questions whether sufficient transparency, consultation and supporting data were provided before the framework was introduced. These are arguments made by the petitioner and remain subject to the court's consideration.

Why The Rs 2,000 Threshold Matters

The Rs 2,000 threshold has become one of the key points in the legal challenge. Under the framework, a merchant transaction of Rs 2,000 remains outside the general MDR, while an eligible transaction above that threshold can attract the 0.4 per cent rate. The petition has questioned the basis for selecting this particular threshold and other classifications used in the framework. The petitioner has sought disclosure of the data and methodology used to establish these limits. The court's request for an affidavit from the Centre will allow the government to explain the basis for the framework and provide the material it relied upon.

What The Centre Told The Supreme Court

During the hearing, Additional Solicitor General N Venkataraman defended the framework. He told the bench that the charge was not a tax or a government levy and that the government would not receive the money. According to the Centre's position, the MDR represents a settlement cost within the payment ecosystem involving banks and payment service providers. The government has also argued that electronic transactions involve costs for banks and other participants, while UPI payments have historically been provided without an MDR.

Court Says Issue Needs More Facts

During the hearing, the bench indicated that the matter involved significant technical aspects. The court's decision to seek an affidavit means the Centre will have to place detailed information before the judges instead of relying only on oral submissions. The government is expected to explain the basis for the framework, while the RBI and NPCI will also respond to the issues raised by the petition. The next stage of the case will therefore focus on the material submitted by the respondents and the legal questions raised by the petition.

NPCI Says Revenue Will Support Payment Infrastructure

NPCI, which operates the UPI network, has previously said that revenue generated through the new system will support investment in areas such as infrastructure resilience, cybersecurity, fraud prevention, innovation and customer service. These areas have become increasingly important as digital payments continue to operate on a very large scale. The proposed MDR therefore comes at a time when the payment ecosystem is dealing with questions about security, infrastructure capacity and the cost of maintaining digital payment networks. The government's position is that the framework can help support the system while keeping ordinary small-value and person-to-person payments free.

What The Supreme Court Decision Means Right Now

The Supreme Court's refusal to grant an interim stay does not mean that the court has given a final ruling on the legality of the MDR framework. Instead, the court has allowed the process to continue while asking the Centre and other respondents to provide their detailed responses. The framework is therefore not presently blocked by a Supreme Court interim order. The proposed October 15 implementation date remains an important milestone, although the legal proceedings could lead to further developments before or after that date. The court's eventual decision will determine the broader legal position on the challenged framework.

What UPI Users Should Know

For ordinary users, several parts of the proposed system are particularly important. First, person-to-person transfers remain free. Second, eligible merchant payments of up to Rs 2,000 remain outside the general MDR. Third, the proposed 0.4 per cent MDR applies to specified merchant transactions above Rs 2,000.Fourth, the merchant-side charge has a maximum limit of Rs 300 for transactions of Rs 75,000 and above.

What Happens Next In The Supreme Court?

The Centre, RBI and NPCI have been asked to file their responses within four weeks. The next stage will give the court an opportunity to examine the legal foundation of the framework, the government's reasoning, the technical structure of MDR and the concerns raised in the petition. Until then, the Supreme Court has not suspended the framework. The case could become an important test of how India's digital payment infrastructure is funded and regulated as UPI continues to handle a massive volume of transactions. For consumers, the immediate position remains relatively straightforward: there is no blanket UPI fee on every payment. The proposed MDR is limited to specified categories, particularly higher-value merchant transactions.

Will UPI payments above Rs 2,000 be charged?

Specified person-to-merchant UPI payments above Rs 2,000 are covered by the proposed MDR framework. The charge is structured as a merchant-side payment ecosystem fee.

Will customers directly pay the UPI MDR?

Under the framework described by the Centre, the MDR is to be borne within the merchant payment ecosystem rather than directly charged to consumers.