Supreme Court Refuses Interim Stay on UPI Charges Above INR 2,000

The government has explained that the 0.4% Merchant Discount Rate (MDR) on certain UPI person-to-merchant transactions exceeding INR 2,000 is not a tax or fee. However, on 28 September, the Supreme Court nevertheless declined to halt the Centre's decision to implement it.

In response to a petition that contested the gazette notices published by the Union Ministry of Finance announcing the rate, a three-judge bench headed by Chief Justice Surya Kant requested responses from the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI). Justices V. Mohana and Joymalya Bagchi were also on the bench, and they were very explicit that they were just looking at the decision's legal implications.

MDR Charges will Dent India’s Digital Payment Infra: Experts

There has been no cost to use UPI for almost six years. The proposed change on October 15 is still scheduled to take place, since 28 September's order refuses to stop the new cost at this time. In reality, almost nothing changes for the majority of consumers; payments to close friends and family remain free of charge, as do payments to small businesses up to a limit of INR 2,000. However, merchants are liable for the applicable 0.4% fee after that threshold is crossed.

A decrease in digital payments could result from smaller retailers passing it on or just asking for cash. According to Additional Solicitor General N. Venkataraman, who is representing the Centre, MDR is not yet in force and would most likely not go into force until October 15. Venkataraman responded to Justice Bagchi's question about whether the amount is a tax or a fee by saying it is neither. The next thing Justice Bagchi wanted to know was MDR's character.

Credit and debit cards were mentioned by Venkataraman as another example of a situation where a cost-sharing agreement is in play among the parties involved. According to the law enforcement official, UPI also includes aggregators and banks. The Indian government has not designated it as a statutory collection. The nodal body, NPCI, makes it possible. Not a single rupee will be retained by the Indian government.

MDR and its Infrastructure

On September 15, the UPI transaction MDR regime was announced. Merchant processing fees (MDR) are paid by businesses to financial institutions, payment processors, and third-party applications that aid in the execution of digital transactions. With a few exceptions, it will be applied uniformly at a rate of 0.4% to all payments to merchants over INR 2,000. Customers that pay with UPI shouldn't have to pay this fee; it should be a part of the merchant payment ecosystem.

The government has "advised" financial institutions to prevent businesses from charging consumers for MDR fees. Platform fees or hidden costs cannot be imposed by UPI application providers, according to the Finance Ministry. The new structure put a stop to the nearly six-year period of zero-MDR UPI payments for certain transactions, as instituted by the government. From October 15th, under the framework, UPI payments between individuals and merchants above INR 2,000 will be subject to a 0.4% MDR.