# Supreme Court Refuses to Stay Merchant Fee on UPI Transactions, Issues Notice to Government and RBI

> The Supreme Court has declined to halt the implementation of MDR on UPI payments above Rs 2000, but has sought responses from the central government, RBI, and other bodies within four weeks.

**Type:** article · **Category:** Business · **Published:** 2026-09-28 · **Source:** TrendKia
**Canonical:** https://trendkia.com/en/business/marchenta-upi-tranjaikshana-charja-para-supreme-court-ka-roka-se-inakara-kendra-sarakara-aura-rbi-se-manga-javaba-39876 · **Language:** English
**Tags:** Supreme Court, UPI, MDR, Reserve Bank of India, Digital Payments, Nirmala Sitharaman, Surya Kant

The Supreme Court of India has declined to put an interim hold on the government's plan to levy a Merchant Discount Rate (MDR) on UPI transactions exceeding Rs 2000. However, the top court has decided to examine the legal validity of the decision, issuing formal notices to the central government, the Reserve Bank of India (RBI), the National Payments Corporation of India (NPCI), and the UPI Steering Committee. These entities have been given a period of four weeks to submit their official responses to the court. The decision marks a significant development in India's digital payments landscape, as the upcoming framework could alter the economics of digital transactions for businesses across the country.

## The Legal Challenge Against MDR
The judicial intervention comes after a petition was filed by advocate Anjan Datta. The plea specifically seeks the cancellation of the official notification issued on December 14, alongside the comprehensive MDR framework introduced on September 15. The petitioner argues that the decision to levy this charge lacks a solid legal foundation and has been implemented without adequate statutory backing. The legal challenge focuses on whether the government has the authority to introduce such financial frameworks without passing dedicated legislation.

During the proceedings, a bench led by Chief Justice Surya Kant raised critical questions regarding the nature of the levy. The court has asked the central government to clarify whether the MDR collected on high-value transactions should be classified as a service fee, a tax, or another category of charge altogether. By asking the government to define the exact nature of the MDR, the bench of Chief Justice Surya Kant is seeking to understand the statutory authority behind the decision before passing any final judgment.

## Understanding the New MDR Rules
Under the newly approved framework, the central government has authorized an MDR of 0.4 percent on UPI transactions of more than Rs 2000 made to merchants. The policy makes it clear that smaller transactions will remain entirely unaffected, ensuring that all merchant transactions up to Rs 2000 continue to be completely free of cost. This new system seeks to balance the rapid expansion of digital payments with the financial sustainability of the banks and payment platforms that maintain the network.

Furthermore, normal peer-to-peer (P2P) transactions, which occur directly between the bank accounts of two individuals, will also remain exempt from any fees. The government has recently clarified that MDR is not a tax. Instead, it is structured as a fee that will be shared between banks and UPI service provider platforms to support the digital payment infrastructure. The implementation of this new charging mechanism is scheduled to take effect from October 15.

## Government Stand on Digital Payment Infrastructure
The rationale behind introducing the transaction fee was previously addressed by Union Finance Minister Nirmala Sitharaman in August. The minister emphasized that the MDR would not place any financial burden on everyday consumers, as it is strictly applicable to merchants. The revenue generated from these fees is intended to help banks and fintech companies invest in upgrading technology infrastructure and enhancing security protocols for the UPI network.

The upcoming transition on October 15 will serve as a test for the fintech ecosystem. Financial institutions have argued that maintaining the vast UPI network requires significant ongoing investment. By utilizing the MDR to fund infrastructure and security upgrades, the government and financial bodies hope to make the ecosystem more robust against cyber threats and transaction failures, even as transaction volumes continue to hit record highs every month.

## What this means for you
The decision directly affects commercial entities using digital payment options and the broader financial ecosystem.

- **For Merchants:** Businesses accepting high-value digital payments will have to bear a 0.4 percent fee on transactions above Rs 2000 starting October 15. This might slightly increase their operational costs, though they cannot pass this charge to consumers.
- **For General Consumers:** Everyday users will experience no financial changes when making UPI transfers or paying small-scale shops. All transactions up to Rs 2000 and person-to-person transfers remain completely free.
- **For Digital Payment Platforms:** Banks and financial technology companies will receive a new revenue stream to maintain network stability. This funds will be utilized to upgrade security features and system infrastructure.

## Why this happened
The dispute arose over the government's regulatory move to sustain digital payment networks without taxing the general public.

- **Infrastructure Costs:** Maintaining a massive digital payment network requires substantial capital investments in technology and security. The fee was introduced to help banks and fintech firms offset these rising operational expenses.
- **Legal Challenge:** Petitioner Anjan Datta challenged the decision in court, arguing that the framework lacked proper statutory authorization. The plea demands the cancellation of the September 15 framework and the December 14 notification.
- **Court Review:** The Supreme Court declined to pause the policy but issued notices to clarify the legal nature of the levy. The central government and banking regulators must now explain whether this levy constitutes a service fee or a tax.

## Questions & Answers

### 1. What did the Supreme Court decide regarding the UPI MDR charge?
The Supreme Court refused to put a stay on the implementation of the MDR charge for merchant transactions over Rs 2000, while issuing notices to relevant authorities for clarification.

### 2. Who has been served notices by the Supreme Court in this case?
The court has issued notices to the central government, the Reserve Bank of India, the National Payments Corporation of India, and the UPI Steering Committee, seeking their replies in four weeks.

### 3. When is the new MDR system scheduled to come into effect?
The new merchant charging framework is scheduled to take effect from October 15.

### 4. Will individual users have to pay fees for transferring money to friends?
No, personal peer-to-peer (P2P) transactions between two individuals will remain completely free under the new rules.

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