The Supreme Court on Monday issued notice on a plea challenging the Centre’s September 14 notification and the September 15 framework introducing Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions above ₹2,000. The framework is scheduled to take effect from October 15.
A Bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice J. V. Mohana heard the challenge.
Appearing for the petitioner, counsel submitted that UPI had helped reduce black-money transactions since its introduction, questioning the basis for imposing charges on higher-value transactions.
Additional Solicitor General K. M. Nataraj submitted that the framework was yet to come into operation, with October 15 being the first milestone. He told the Court that around 96% of transactions using payment gateways would remain exempt, while transactions in specified essential services would attract a capped charge of ₹5. He emphasised that there was a value cap and that the levy was “not a tax or fee.”
The CJI observed that the Court would require these aspects to be placed on affidavit, noting that “it is more of a technical issue.” Justice Joymalya Bagchi, however, questioned the legal character of the levy. He asked:
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“What is the executive scope of making this expropriation? We would have understood if it was a fee. It’s not a fee, then what is the character? Charge of 1% on 140 crore Indians…”
The ASG explained that digital payment systems involve costs, just as debit and credit-card transactions do. He submitted that UPI was no different in this regard and that the charges were part of the settlement mechanism between the entities involved.
He further clarified that the Union Government would not receive any portion of the amount, stating that the charge was not a statutory collection by the Centre but a settlement fee between the players facilitated by the National Payments Corporation of India (NPCI).
Under the announced framework, the general MDR for specified P2M UPI transactions above ₹2,000 is 0.4%, subject to a ₹300 cap for transactions of ₹75,000 and above. Certain essential and thin-margin sectors attract a flat ₹5 MDR, while specified capital-market transactions attract 0.02%, subject to a ₹300 cap.