SC questions legal basis for new UPI charges, declines plea to stay levy

Additional Solicitor General N. Venkataraman, appearing for the Centre, said the government was not collecting the money. Instead, the charge was a settlement fee paid between participants in the payment system.

Mumbai: The Supreme Court on Monday declined to stay the Centre's decision to levy fees on select UPI transactions above ₹2,000, but sought an affidavit from the government explaining the basis for introducing a new Merchant Discount Rate (MDR).

The apex court also issued notice to the Reserve Bank of India (RBI), the payments regulator, and the National Payments Corporation of India (NPCI), which operates the Unified Payments Interface (UPI) network.

The court was hearing a plea filed by advocate Anjan Datta challenging the legal basis for the levy and the manner in which it was introduced. A bench headed by Chief Justice Surya Kant, along with Justices Joymalya Bagchi and J.V. Mohana, questioned the Centre on the legal nature of the charge and the authority under which it could be imposed.

The bench questioned the government's explanation that the MDR was neither a tax nor a fee.

“What is the executive scope of making this expropriation? We would have understood if it was a fee. It's not a fee, then what is the character?” the bench asked.

The government announced on 15 September that a 0.4% MDR will be levied on person-to-merchant (P2M) UPI payments of ₹2,000 or more, with a cap of ₹300 on transactions of ₹75,000 or more. Person-to-person (P2P) UPI payments, however, will remain free. The new levies come into effect on 15 October.

Additional Solicitor General N. Venkataraman, appearing for the Centre, said the government was not collecting the money. Instead, the charge was a settlement fee paid between participants in the payment system.

“There's a cost for doing debit/credit card transactions. UPI is no different: two operators provide the service. one are the banks. It is not a statutory collection by the government of India. It's a settlement fee amongst the players, which NPCI facilitates. The government is not taking a rupee of this,” Venkataraman said as he explained that banks and payment operators incur costs in processing UPI transactions and that the proposed MDR would be shared within the payment ecosystem, and not with the government.

During Monday’s hearing, the petitioner’s counsel also argued that the UPI had helped reduce black-money transactions and sought a stay on the new charges.

The Supreme Court, however, declined to grant interim relief.

Certain essential sectors will incur a flat ₹5 charge, while capital market transactions will incur a 0.02% MDR capped at ₹300. Small merchants receiving up to ₹1 lakh per month through UPI quick-response code payments have also been excluded from the MDR framework.

The petitioner challenged the framework on constitutional and legal grounds, arguing that the government had not adequately explained the basis for the ₹2,000 threshold or other classifications. It also questioned the executive’s power to determine which electronic payments should remain free.

The plea also raised concerns that merchants could eventually pass the additional cost on to consumers. It sought quashing or suspension of the new framework or, alternatively, a fresh process based on disclosed data and an impact assessment.

About the Author

Yash Tiwari is a Mumbai-based journalist who reports on corporate and regulatory developments, with a focus on court-driven policy shifts and the intersection of law and public policy. He has been in the profession for two years. Before joining Mint, he worked at NDTV Profit as an assistant producer on the TV desk while also reporting, gaining experience across television and print journalism and combining reporting with production expertise.<br><br> Born in Kolkata, a city he remains deeply connected to, Yash has a keen interest in the technicalities of Indian law and aims to decode complex legal developments in a clear and accessible manner for readers. He is a graduate of the Asian College of Journalism, Chennai, where he completed his postgraduate diploma in journalism.<br><br> He closely follows politics and government policies, and has covered several state elections as a freelance journalist. His work is driven by the idea of making law less intimidating and more understandable for the general public.<br><br> When not at work, Yash can be found playing cricket, revisiting classic matches, or engaging in conversations about the evolving landscape of law and policy in India.

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