Supreme Court Seeks Centre’s Response on UPI Charges Above Rs 2,000, Declines Interim Stay

New Delhi, Sep 29 (KNN) The Supreme Court on Monday sought an affidavit from the Union government explaining the legal and operational basis for allowing charges on specified person-to-merchant (P2M) Unified Payments Interface (UPI) transactions above Rs 2,000, while declining to stay the proposed framework.

A bench comprising Chief Justice of India (CJI) Surya Kant and Justices Joymalya Bagchi and V Mohana was hearing a writ petition challenging notifications issued by the Finance Ministry on September 14 and 15. The court also issued notice to the Reserve Bank of India (RBI), National Payments Corporation of India (NPCI) and other respondents.

Court Seeks Clarity On Legal Basis

Additional Solicitor General (ASG) N Venkataraman, appearing for the Centre, told the bench that the charges would take effect from October 15 and that around 96 per cent of transactions would remain unaffected. He said the charges were neither a tax nor a fee, but a settlement charge within the payment ecosystem.

The bench sought these details on affidavit. Justice Bagchi questioned the legal basis and nature of the charge, including whether it constituted a tax or fee and what provided the legal authority for imposing it.

The ASG noted that the government would not receive any part of the amount and that the charge was intended to cover costs incurred by banks and other participants in processing electronic transactions.

The petitioner also sought an interim stay, arguing that the charges could discourage digital payments. The court, however, declined to grant a stay at this stage.

Proposed MDR Framework

Under the framework announced by the government, Merchant Discount Rate (MDR) would apply to specified P2M UPI transactions above Rs 2,000. The standard rate is 0.4 per cent, subject to a maximum of Rs 300 for transactions of Rs 75,000 or more.

A flat MDR of Rs 5 has been specified for certain essential and thin-margin sectors, while capital market transactions would attract an MDR of 0.02 per cent, capped at Rs 300.

Person-to-person UPI transactions would remain free irrespective of the amount, while eligible small merchants would continue under the zero-MDR framework. The government has said around 96 per cent of merchant transactions would remain unaffected.

Implications For Businesses And MSMEs

The proposed charges are relevant to businesses, including MSMEs, that receive high-value customer payments through UPI. While the framework is intended to operate within the payment ecosystem rather than as a tax, businesses may need to assess its impact on payment-processing costs and pricing once the rules take effect.

The Finance Ministry has advised banks to ensure that MDR is not passed on to consumers and has barred UPI application providers from imposing platform fees or hidden charges on users.

The Supreme Court's proceedings are focused on the legal basis and character of the charges; the court has not, at this stage, ruled on their validity.

(KNN Bureau)