Supreme Court PIL Challenges New UPI Merchant Transaction
A Public Interest Litigation filed in the Supreme Court contests the government's decision to impose charges on certain UPI merchant payments above Rs
A Public Interest Litigation has been filed in India's Supreme Court challenging the government's decision to allow fees on certain UPI payments to merchants. The petition, filed by Advocate Anjan Datta, argues the new Merchant Discount Rate framework is arbitrary and could increase costs for consumers and businesses.
The framework, scheduled to take effect from October 15, 2026, was established by a September 14 Finance Ministry notification and a detailed communication issued a day later. The petition names the Union government, the Reserve Bank of India, the National Payments Corporation of India, and the UPI & Services Steering Committee as respondents.
Details of the New Fee Structure
Under the new framework, person-to-merchant UPI transactions above Rs 2,000 will attract a fee. The structure varies by sector.
| Transaction Type / Sector | Fee Structure | Cap |
|---|---|---|
| General P2M UPI (above Rs 2,000) | 0.4% MDR | Rs 300 (for transactions of Rs 75,000 or more) |
| Railways, Telecom, Insurance, Fuel, Agricultural Inputs (above Rs 2,000) | Flat Rs 5 charge | Not applicable |
| Capital-Market Transactions | 0.02% MDR | Rs 300 |
Person-to-person UPI transfers remain free regardless of amount. Small merchants receiving up to Rs 1 lakh a month through UPI QR codes are also exempt from the charges.
Constitutional and Procedural Challenges
The PIL raises several constitutional and procedural objections. It questions why the notification continues no-charge protection for RuPay debit-card transactions without an upper limit while restricting similar protection for UPI merchant payments to Rs 2,000. The petition argues this distinction violates Article 14 of the Constitution, which guarantees equality before the law, because the two payment systems serve overlapping groups.
The petition also challenges the Rs 2,000 transaction threshold and the Rs 1 lakh monthly exemption for small merchants. It states the government has not disclosed the data or methodology used to arrive at these limits. According to the plea, this creates a sharp, potentially arbitrary difference between transactions just below and just above the threshold.
The petitioner has questioned the legal basis for the specific MDR rates. The plea notes that while the September 14 Gazette notification changes the scope of statutory no-charge protection, the detailed rates were set out in a September 15 communication. The petitioner states the government had not published a corresponding Gazette notification prescribing these specific rates and classifications when the case was filed.
Also, the PIL challenges the amended Section 10A of the Payment and Settlement Systems Act itself. It argues the amendment gives the government excessive discretion over which electronic payment methods receive statutory no-charge protection without laying down the rates or a mechanism for determining them. The petition also seeks disclosure of the UPI & Services Steering Committee's legal authority, decisions, and the data used to design the framework.
Relief Sought from the Court
Invoking Articles 14 and 19(1)(g) of the Constitution, the petition seeks to quash the September 14 notification and the resulting MDR framework. It has also sought a declaration that the amended Section 10A is unconstitutional.
As an alternative, the petitioner has asked the government to reconsider the framework after public consultation, publish the underlying data and impact assessment, and seek an independent review by the RBI. The plea also requests safeguards for small businesses. The government has stated that banks must ensure merchants do not pass MDR charges to customers and has barred UPI apps from imposing platform fees. It estimates about 96% of merchant transactions will remain unaffected by the new charges.
