Supreme Court Leaves Limited UPI Merchant Fee on Track for October 15

India’s Supreme Court has declined to temporarily block a new merchant discount rate, or MDR, on certain Unified Payments Interface payments to businesses. At a hearing on September 28, 2026, the court sought responses to a petition challenging the policy but did not stay its implementation. Accounts of the hearing published on September 29 should not be mistaken for a separate decision that day.

The distinction matters for anyone who uses UPI: the court has not ruled that the policy is lawful, and it has not introduced a fee on every payment. The government’s framework is scheduled to take effect on October 15, 2026. Unless the policy changes or a court intervenes, its MDR will apply to specified person-to-merchant payments, not ordinary transfers between individuals.

Which payments could attract MDR?

Under the general rate, an eligible UPI payment to a merchant of more than ₹2,000 will attract an MDR of 0.4%. It is a merchant-side payment-processing charge, rather than a fee the customer is supposed to see added at checkout. For example, the general rate would amount to ₹12 on a qualifying ₹3,000 purchase and ₹40 on a qualifying ₹10,000 purchase. For payments of ₹75,000 or more, the charge is capped at ₹300 per transaction.

There are important exceptions. Person-to-person UPI transfers will remain free regardless of their value, and merchant payments of ₹2,000 or less will not attract MDR. Small merchants, including eligible street vendors who receive up to ₹1 lakh a month through UPI QR codes under the designated small-merchant category, will also retain zero MDR, even if an individual payment exceeds ₹2,000. Eligibility depends on the merchant’s account classification, not simply the size of one purchase.

Some types of business payment have different rates. Qualifying payments above ₹2,000 in sectors including railways, telecommunications, insurance, fuel and agricultural inputs are set to attract a flat ₹5 charge rather than the general percentage rate. The framework also provides a 0.02% rate, capped at ₹300, for specified capital-market payments, including transactions involving mutual funds and securities.

The Finance Ministry estimates that about 96% of merchant transactions will remain unaffected. That is an estimate about the share of transactions, not a promise that every shop or every customer will experience the change in the same way.

What did the court decide?

The petition, filed by advocate Anjan Datta, challenges the government’s September 14 notification and the MDR framework announced on September 15. Datta contends that the measure lacks adequate safeguards and transparency and could burden merchants or indirectly affect customers. Those are arguments in the case, not findings by the court.

The Supreme Court issued notice to the Union government, the Reserve Bank of India, the National Payments Corporation of India and other respondents, seeking their explanations. It also asked for clarity on the legal and policy basis of the charge. By declining an interim stay, the court left the planned start date in place while the challenge continues. It did not deliver a final judgment on the policy.

The government describes MDR as a charge shared within the payments system, including among banks and payment-service providers, rather than a tax or a payment collected by the government. It says the proceeds will help support UPI infrastructure. The petitioner, by contrast, argues that even a fee formally charged to merchants could squeeze their margins or influence how they accept payments.

What could merchants and customers notice?

For a business that regularly accepts qualifying payments above ₹2,000, MDR would add a processing cost to those sales. Its effect will depend on the merchant’s payment mix, margins and eligibility for an exemption or a special rate. A small shop in the protected category should not assume it will be charged merely because a customer makes one larger purchase; a larger merchant should not assume every UPI receipt will carry MDR.

Customers are not supposed to pay the MDR directly. The Finance Ministry says merchants cannot pass it on as a separate UPI charge, and payment apps are barred from imposing platform fees or hidden charges under this framework. The petitioner nevertheless raises the possibility of indirect effects, such as changes in prices or payment acceptance. Those potential effects are disputed and cannot be treated as an announced customer fee.

For now, the practical takeaway is straightforward: October 15 is the scheduled start date, not the date of a court verdict. A transfer to a friend remains outside the framework, and paying a merchant more than ₹2,000 does not automatically mean the customer owes an extra charge. The legal challenge remains open, so the policy’s longer-term position has yet to be settled.