Supreme Court Seeks Centre’s Response on UPI Charges Above ₹2,000, Declines Interim Stay

The Supreme Court on Monday asked the Centre to place on record the legal and policy basis for allowing charges on certain Unified Payments Interface (UPI) payments above ₹2,000 made to merchants. The court, however, did not stay the new framework, which is scheduled to come into effect from October 15. 

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The matter relates to a writ petition filed by advocate Anjan Datta challenging the Union Finance Ministry’s notifications issued on September 14 and 15. These notifications paved the way for Merchant Discount Rate (MDR) charges on specified commercial UPI transactions above ₹2,000. 

The case was heard by a Bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana. 

Under the new framework, specified person-to-merchant (P2M) UPI payments exceeding ₹2,000 will attract an MDR of 0.4 per cent. For transactions of ₹75,000 or more, the charge will be capped at ₹300. 

Centre Asked to Explain Basis for Charge 

During the hearing, the Centre informed the court that the new charges would take effect from October 15. According to its submission, around 96 per cent of transactions would remain outside the charge. 

The Centre maintained that the amount would not go to the government. Instead, it would operate as a settlement charge distributed within the payments ecosystem, including among banks and payment aggregators. 

It also submitted that banks incur costs in processing electronic payments and that UPI transactions have largely remained outside such charges so far. The government’s position is that the new framework would support the functioning of the UPI ecosystem. 

The court sought further clarity on the legal character and basis of the charge and directed the Centre to provide the relevant facts through an affidavit. 

Notices were subsequently issued to the Centre, the Reserve Bank of India and the National Payments Corporation of India. 

Court Declines to Put Framework on Hold 

The petitioner sought an interim stay on the framework, arguing that the charges could lead to greater use of cash and black-money transactions. 

The Bench declined to grant interim relief. 

The public interest litigation has been filed against the Union government, RBI, NPCI and the UPI & Services Steering Committee. The petition also raises concerns that businesses could eventually pass the additional cost on to consumers. 

Which UPI Transactions Will Remain Outside MDR? 

The new framework does not cover every UPI payment. 

Person-to-person UPI transfers will continue to remain free regardless of the transaction amount. Merchant payments of up to ₹2,000 will also remain outside the MDR framework. 

Small merchants receiving up to ₹1 lakh a month through UPI QR codes under the person-to-person merchant category will continue to have zero MDR. 

The September 14 notification also protects specified electronic payments, including UPI transactions of up to ₹2,000 and RuPay debit card payments, from direct or indirect charges on people making or receiving those payments. 

Different Charges for Specific Transactions 

For general person-to-merchant UPI transactions above ₹2,000, the MDR has been fixed at 0.4 per cent, with the charge capped at ₹300 once the transaction value reaches ₹75,000 or more. 

Essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will have a flat MDR of ₹5 on transactions exceeding ₹2,000. 

Capital market transactions will carry a lower MDR of 0.02 per cent, also subject to a ₹300 ceiling. 

Banks have been advised to ensure that merchants do not pass the MDR on to customers. UPI application providers have also been barred from imposing platform fees or hidden charges on users. 

With the Supreme Court seeking an affidavit from the Centre, the legal and policy basis of the framework will now come under further examination. For the moment, however, the October 15 implementation date remains unchanged.