New Delhi: The legality of levying a Merchant Discount Rate (MDR) on certain Unified Payments Interface (UPI) transactions has become a subject of intense legal scrutiny. The National Payments Corporation of India (NPCI) recently defended the imposition of these charges in the Supreme Court, asserting that the fees are essential for operating and maintaining the country’s vast digital payment infrastructure.
The controversy stems from a Public Interest Litigation (PIL) filed by advocate Anjan Datta, which challenges the amended Section 10A of the Payment and Settlement Systems (PSS) Act, 2007. The petition questions the central government’s authority to determine which digital transactions attract charges and which remain free. It also raises objections against the government notifications issued in September regarding the MDR framework and the differential treatment between UPI and RuPay debit cards.
Responding to the petition on November 3, the NPCI clarified its stance before the apex court. The payment gateway operator stated that Sections 20 and 21 of the PSS Act grant it the legal right to set the terms and conditions for its payment systems, which inherently includes the application of relevant charges. The NPCI emphasised that the MDR is not a tax, but rather a commercial fee collected in exchange for providing secure and seamless digital payment services to merchants.
Under the newly outlined rules, regular person-to-person (P2P) UPI transfers will remain completely free of charge, regardless of the transaction amount. Furthermore, merchant payments up to Rs 2,000 will continue to attract zero fees. Small and eligible merchants who receive up to Rs 1 lakh monthly via UPI QR codes are also exempted from the MDR.
However, specific merchant transactions exceeding Rs 2,000 will incur a 0.4 per cent MDR. For transactions amounting to Rs 75,000 or above, this charge is capped at a maximum of Rs 300. Additionally, specific sectors may see a flat fee of Rs 5, while capital market transactions will attract a separate rate of 0.02 per cent. According to estimates by the Finance Ministry, this tiered fee structure ensures that approximately 96 per cent of all merchant transactions will remain unaffected by the new MDR system.
As the Supreme Court continues to evaluate the framework’s legality, the outcome of this case will significantly impact the operational dynamics of India’s booming digital payment ecosystem.