SC seeks Centre’s response on challenge to MDR for high-value UPI merchant payments

The Supreme Court on Monday sought responses from the Centre, the Reserve Bank of India and other authorities on a petition challenging the levy of Merchant Discount Rate (MDR) on certain UPI person-to-merchant transactions exceeding Rs 2,000.

A bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana directed the respondents to submit their counter affidavits within four weeks. However, the court declined to grant an interim stay on the government’s decision to introduce the charge.

Additional Solicitor General N Venkataraman, appearing for the Centre, told the bench that 96 per cent of users of the payment gateway would remain outside the levy. The bench observed that the matter appeared to involve more of a technical issue than a legal one.

The petition was filed as a public interest litigation by advocate Anjan Datta. After the court issued notice, counsel for the petitioner sought a stay until the respondents filed their replies, but the bench rejected the request.

Under the new framework, UPI merchant transactions above Rs 2,000 will attract an MDR of 0.4 per cent from October 15. The move marks a shift from the nearly six-year period during which UPI payments remained free of such charges.

The government has, however, kept person-to-person (P2P) transactions outside the MDR regime. P2P payments account for around 37 per cent of UPI transaction volume and 70 per cent of transaction value and will continue to carry zero charges irrespective of the transaction amount.

For high-value merchant payments, the MDR will be capped at Rs 300 for transactions of Rs 75,000 and above.

Certain essential and low-margin sectors, including railways, telecom, insurance, fuel and agricultural inputs, will be subject to a flat MDR of Rs 5 per transaction above Rs 2,000.

A separate MDR of 0.02 per cent, with a maximum cap of Rs 300, will apply to payments involving mutual funds, securities, stockbrokers and dealers.