UPI Charges: Supreme Court Refuses Stay on 0.4% MDR Above ₹2,000, Seeks Centre’s Response

The Supreme Court has refused to grant an interim stay on the Centre's new Merchant Discount Rate (MDR) framework for specified UPI merchant payments above ₹2,000. The new framework is scheduled to take effect from October 15, 2026.

Under the framework, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000. The Supreme Court has sought the Centre's response on the legal and policy basis for allowing the charges.

Supreme Court hearing on UPI charges

A three-judge bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana heard a petition challenging the new UPI MDR framework.

The petition was filed by advocate Anjan Dutta, who questioned the basis for setting the ₹2,000 threshold and raised issues concerning the distinction between UPI and RuPay card transactions.

The court has sought responses from the Centre and other relevant authorities while declining to suspend the framework at this stage.

Will customers have to pay the UPI charge?

The new MDR is a merchant-side charge, rather than a separate fee imposed directly on the person making the UPI payment.

The framework applies to specified merchant transactions. Person-to-person transfers remain outside the MDR framework, while eligible small merchants can continue to receive UPI payments without MDR.

What is the new UPI MDR rule?

The key provisions include:

Up to ₹2,000: No MDR on individual eligible merchant transactions.

Above ₹2,000: A 0.4% MDR can apply to specified P2M transactions.

₹75,000 and above: MDR is capped at ₹300 per transaction.

Small merchants: Eligible merchants receiving up to ₹1 lakh a month through UPI QR payments can qualify for zero MDR.

P2P transfers: Person-to-person UPI transfers remain outside the merchant MDR framework.

Effective date: The new framework is scheduled to begin on October 15, 2026.

How much will the UPI MDR cost?

For an eligible merchant transaction of ₹10,000, a 0.4% MDR would amount to ₹40. On a ₹50,000 transaction, the MDR would be ₹200.

For transactions of ₹75,000 or more, the charge is capped at ₹300. For example, a ₹1 lakh transaction would attract ₹300 rather than ₹400 under the 0.4% calculation.

The MDR is separate from GST treatment. NPCI has said GST paid on MDR can be adjusted against GST liability through input tax credit for eligible businesses.

What is Merchant Discount Rate (MDR)?

Merchant Discount Rate, or MDR, is a charge associated with accepting digital payments. It is paid within the payment ecosystem by the merchant rather than being a direct charge to the customer making the transaction.

The charge is intended to cover costs associated with processing and maintaining payment infrastructure and is distributed among relevant participants in the payments ecosystem.

What does the Supreme Court's order mean?

The Supreme Court's decision does not cancel the new MDR framework. Instead, the court has sought an explanation from the Centre while declining to grant an interim stay.

The framework therefore remains scheduled for implementation from October 15, 2026, subject to further proceedings in the Supreme Court.

The case could provide further clarity on the legal basis, scope and implementation of UPI MDR as the court considers the responses from the government and other authorities.