Supreme Court Refuses Interim Stay on 0.4% UPI MDR Above ₹2,000: What Merchants Need to Know
The Supreme Court has declined to grant an interim stay on the Centre’s new Merchant Discount Rate (MDR) framework for certain UPI merchant payments above ₹2,000. The court has issued notices to the Centre, Reserve Bank of India (RBI), National Payments Corporation of India (NPCI) and other respondents while the legal challenge to the framework moves forward.
The new framework is scheduled to take effect from October 15, 2026.
What Is Changing for UPI Payments?
Under the announced framework, specified person-to-merchant (P2M) UPI transactions above ₹2,000 will attract an MDR of 0.4%.
The charge is capped at ₹300 for transactions of ₹75,000 or more. UPI payments up to ₹2,000 remain outside this particular MDR framework. Person-to-person UPI transfers also remain free under the announced structure.
For example, a qualifying merchant transaction of ₹10,000 would have an MDR of ₹40 at the 0.4% rate, subject to the applicable rules and exemptions.
Supreme Court Seeks Government Response
The case before the Supreme Court challenges the legal and policy basis of the new UPI MDR structure.
The bench headed by Chief Justice of India Surya Kant has sought responses from the government and other authorities. The Centre has also been asked to explain the legal and policy basis for the charge. According to the government’s position reported in court, the amount is intended as a settlement fee distributed among participants in the payments ecosystem rather than being collected by the government as revenue.
Importantly, the Supreme Court’s refusal to grant an interim stay does not amount to a final decision on the legality of the MDR framework. The broader challenge remains before the court.
Which UPI Transactions Are Covered?
The framework contains different MDR rates depending on the category of transaction.
- General eligible P2M UPI payments above ₹2,000: 0.4%
- Transactions of ₹75,000 and above: maximum MDR of ₹300
- Certain essential and thin-margin sectors: ₹5 per qualifying transaction
- Capital-market related payments: 0.02%, subject to a ₹300 ceiling
- Person-to-person transfers: no MDR under the announced framework
The ₹5 category includes sectors such as railways, telecommunications, insurance, fuel and agricultural inputs.
Why Has the Decision Become a Major Issue for Merchants?
For many businesses, UPI has become an important payment channel because customers can make digital payments without the merchant having to handle cash.
The introduction of MDR changes the economics of some larger merchant transactions. A business with relatively thin margins could see its payment-related costs increase if a significant portion of its sales falls within the chargeable category.
The practical effect will depend on factors such as transaction size, monthly UPI receipts, the merchant’s sector and the applicable exemptions.
Will Customers Have to Pay the UPI Charge?
The MDR is structured as a merchant-side payment-processing charge, rather than a fee announced directly for consumers making UPI payments.
However, the economic impact on customers can still depend on how individual businesses respond to the additional cost. The legal challenge itself has raised concerns about the possibility of costs indirectly affecting merchants and consumers. These are issues being examined in the ongoing proceedings rather than settled findings of the court.
Why the ₹2,000 Threshold Matters
The ₹2,000 threshold creates a clear distinction between transactions below and above that level.
That means merchants and payment companies will need to account for the applicable category when processing larger payments. For businesses handling high-value transactions frequently, the change could make payment costs a more visible part of their operating expenses.
At the same time, the government framework keeps several categories outside the standard 0.4% structure, meaning the impact will not be identical across all merchants.
What Happens Next?
The Supreme Court has not cancelled the framework or put it on hold at this stage. The government and other respondents now have to respond to the legal challenge.
Unless the framework is subsequently changed, stayed or otherwise modified through further proceedings, the announced MDR structure is scheduled to begin on October 15, 2026.
For merchants, the immediate takeaway is that the court proceedings are still ongoing, while the October 15 implementation date remains relevant.
What This Means for the UPI Ecosystem
The dispute highlights a larger question around how India’s rapidly expanding digital-payment infrastructure should be funded.
UPI has traditionally operated with a zero-MDR model for merchants, supported by the broader payment ecosystem and government incentives. The new framework introduces a mechanism for charging MDR on selected higher-value merchant transactions.
The government and RBI have presented the change as part of efforts to support the long-term sustainability of digital payments and distribute payment-system costs among ecosystem participants.
The Supreme Court proceedings will now provide closer scrutiny of the legal basis and structure of the new arrangement.
Final Takeaway
The Supreme Court’s latest order does not mean that the 0.4% UPI MDR has been permanently approved. It means the court has declined to stop the framework temporarily while seeking responses from the government, RBI, NPCI and other parties.
For now, eligible UPI merchant transactions above ₹2,000 remain scheduled to come under the new MDR framework from October 15, 2026, unless there is a subsequent change through government action or court proceedings.
The next developments in the case will be important for merchants, payment companies and businesses that rely heavily on UPI for higher-value transactions.
