The Supreme Court has issued notices to the Centre, Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) over the proposed 0.4% Merchant Discount Rate (MDR) on certain UPI payments above ₹2,000. The court is examining a petition challenging the new framework.
The development comes ahead of the scheduled implementation of the new MDR system on October 15, 2026. The Supreme Court, however, declined to put the framework on hold while the legal challenge is being considered.
What Is the New UPI MDR Charge?
Under the new framework, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000. The charge will be capped at ₹300 for transactions of ₹75,000 or more.
MDR is a processing charge paid within the digital payments ecosystem to participating banks, payment service providers and other entities involved in processing the transaction. It is not a tax collected directly by the government.
For example, if an eligible merchant receives a ₹10,000 UPI payment, a 0.4% MDR would work out to ₹40. The framework concerns the merchant-side processing charge rather than imposing a direct fee on the customer making the payment.
Supreme Court Refuses to Stay the Framework
The petition before the Supreme Court challenges the Centre’s September notifications and the legal basis for introducing MDR on specified UPI transactions above ₹2,000. The petitioner has also raised concerns about the potential impact on consumers and merchants.
The three-judge bench led by Chief Justice Surya Kant sought responses from the Centre, RBI and NPCI. At the same time, the court declined to grant interim relief against the proposed charges.
This means the legal challenge is still pending, while the October 15 implementation date remains in place unless the framework is subsequently changed or stayed.
Will Customers Have to Pay the UPI Charge?
The new MDR is structured as a merchant-side charge, and the government has said merchants should not pass the cost on to customers. Banks have also been advised to ensure that the MDR is not recovered directly from UPI users.
UPI application providers are also prohibited from imposing platform fees or hidden charges on users under the new framework. Therefore, the introduction of MDR does not automatically mean that customers will see a separate charge when making an eligible payment.
Which UPI Transactions Will Remain Free?
Not every UPI payment will attract MDR. Person-to-person (P2P) transfers remain outside the new charge structure, regardless of the transaction value. Merchant payments up to ₹2,000 will also remain outside the MDR framework.
Certain categories have separate provisions. Essential and thin-margin sectors can attract a flat ₹5 MDR on eligible transactions above ₹2,000, while capital-market transactions have been assigned a lower rate of 0.02%, subject to the applicable cap.
What Happens Next?
The Supreme Court’s notice means the Centre, RBI and NPCI will have to respond to the legal challenge. The court will then consider the arguments and the validity of the challenged framework.
For now, the UPI MDR charge above ₹2,000 remains scheduled for October 15, 2026. The final position could depend on the court proceedings and any subsequent decision by the government or payment regulators.
