India's Supreme Court refuses to stay 0.4% UPI merchant fee, seeks government reply

India’s Supreme Court on Monday declined to grant an interim stay on the central government’s decision to impose a 0.4% merchant discount rate (MDR) on specified Unified Payments Interface person-to-merchant transactions above Rs 2,000. The Economic Times

A bench headed by Chief Justice Surya Kant was hearing a public interest litigation challenging the new UPI merchant-charge framework, which is scheduled to take effect from October 15. The court issued notices to the government, the Reserve Bank of India, the National Payments Corporation of India and other respondents.

The petitioner has alleged the levy was introduced without adequate statutory safeguards, transparency and public consultation. The court asked the Centre to explain on affidavit the legal and policy basis for the charge, after the government said it was a settlement fee shared among participants in the payments ecosystem and that the government itself was collecting nothing.

Under the framework, general person-to-merchant UPI transactions above Rs 2,000 will attract 0.4% MDR, capped at Rs 300 for transactions of Rs 75,000 and above. Payments up to Rs 2,000, person-to-person transfers, and small merchants receiving up to Rs 1 lakh a month through UPI QR codes will remain exempt. Additional Solicitor General Venkataraman told the court 96% of gateway transactions would be exempt, essential services would be capped at Rs 5, and the levy was “neither a tax nor a government fee”.

Justice Joymalya Bagchi questioned the executive’s scope to impose what he described as an expropriation, asking: “It’s not a fee, then what is the character? Charge of 1% on 140 crore Indians.” Chief Justice Surya Kant observed the matter appeared to be “more of a technical issue” and directed the Centre to place the details on affidavit.