Supreme Court Refuses to Stay UPI Merchant Charge, Notice Issued to Centre

Synopsis

On September 28, the Supreme Court bench headed by Chief Justice Surya Kant refused to suspend the Centre's decision of imposing a merchant discount rate, which is capped at ₹300 and does not exceed 0.4 per cent of the value of specified UPI merchant payments, from October 15. The court has given notice to the Centre, RBI and NPCI and requested them to file counter-affidavits within four weeks. The government states the charge would not be a tax, while traders' organizations argue that it would impact profits.

The plea submitted before the Supreme Court on Monday was limited – the new UPI merchant fee be kept in abeyance till the Centre responds. The bench, presided over by Chief Justice Surya Kant, Justices Joymalya Bagchi and V. Mohana, denied interim relief.

It issued directions to the Centre, Reserve Bank of India, and the National Payments Corporation of India to file counter-affidavits within four weeks. The charge starts October 15th, if the position remains unchanged.

The Bench's Decisions What They Said and What They Did Not Say

Advocate Anjan Datta had filed the PIL. His advice said that the levy could cause corruption and UPI has helped to curb black money transactions. The government would have to file the facts on affidavit, the Chief Justice said, noting that it was a more technical issue.

The other Solicitor General N. Venkataraman appeared before the court and explained that the per person UPI transactions would continue to be free and around 96 per cent of merchant transactions would not be impacted.

He said the charge was a harmonisation between the service providers which NPCI enables. He added that the government was not taking any rupee of this.

How the Framework Works

The MDR for specified person-to-merchant payments exceeding ₹2,000 is 0.4 per cent with a cap of ₹300 per transaction. Above ₹2,000 a flat ₹5 is the charge in sectors like railways, telecom, insurance and fuel.

Small merchants who receive up to ₹1 lakh via UPI QR codes are still paying a zero MDR. The cap is reached at ₹75,000. They will contribute to a fund for small merchants, which will be 5 per cent of MDR collections. The framework was designed based on discussions held at the UPI Steering Committee.

Merchant Discount Rate (MDR): The fee that merchants pay their bank on every transaction with a digital payment, usually a percentage of the transaction amount. UPI merchant payments have been exempt from since January 2020.

The Government's Position

Finance Minister Nirmala Sitharaman in an interview with PTI explained that the levy is not a tax and no money goes to the government.

She stated that customers wouldn't allow it, comparing it to other cards: "For other cards the trader doesn't charge the consumer the MDR.

The Finance Ministry has stated that it is working with banks and trader organisations to make sure that the levy is not imposed on users. The decision has been attacked by opposition parties.

Traders Push Back

The All India Mobile Retailers Association (AIMRA) has declared that its members will be putting black cloth over QR codes on October 2, a day for which it has termed as 'No UPI Day'.

It has pointed out that a small retailer receiving ₹5 lakh to ₹30 lakh in a month using the UPI system would see a loss of ₹2,000 to ₹12,000 in net income for the month. It estimated that the total impact on the small mobile retailers is roughly ₹40 crore per month.

The Confederation of All India Traders (CAIT) has clarified that it had not issued a "No UPI Day" as reported, noting that some regional organisations might have declared their own "No UPI Day".

Scale and Precedent

NPCI data revealed that UPI had clocked 24.51 billion transactions in August 2026, which was the highest-ever volume with ₹29.82 trillion of transactions valued. The average transaction was about ₹1,217. In March 2025, the Payments Council of India (PCI) had suggested a 0.3 per cent MDR for large merchants and in June 2025, finance minister Smriti Irani had stated that reports of a UPI MDR were "false, baseless, and misleading".

What Comes Next

The counter-affidavits are due about 4 weeks after Monday's order, which will be after October 15. Interim relief refused, charge to be in operation from that date until further order of court. The court has requested the government to clarify on affidavit the "legal character" of the levy.