The Supreme Court on Monday refused to stay the Central government’s decision to impose a Merchant Discount Rate (MDR) on specified Unified Payments Interface (UPI) person-to-merchant (P2M) transactions exceeding Rs2,000.
A Bench comprising Chief Justice of India Surya Kant and Justice Joymalya Bagchi and Justice V Mohana, however, directed the Centre to file an affidavit explaining the basis for the new MDR framework.
The direction was issued while hearing a Public Interest Litigation (PIL) filed by advocate Anjan Datta challenging the levy.
Additional Solicitor General N Venkataraman submitted that person-to-person (P2P) UPI transactions would remain completely free and that around 96% of merchant transactions would remain unaffected.
Under the framework, which is scheduled to take effect from October 15, a 0.4% MDR will be imposed on eligible P2M UPI transactions above Rs 2,000. The charge will be capped at Rs 300 for transactions of Rs75,000 and above, while P2P transactions and P2M payments up to Rs 2,000 will remain free.
Certain essential and thin-margin sectors will attract a flat Rs 5 charge, while capital-market transactions will carry an MDR of 0.02%. Merchants receiving up to Rs 1 lakh per month through UPI will remain exempt.
The petition contends that despite the government’s position that merchants cannot pass the MDR on to consumers, the additional cost could ultimately be factored into prices, affect working capital and prompt low-margin traders to refuse UPI payments or split transactions.
The plea also questioned the distinction between UPI and RuPay-powered debit cards, pointing out that statutory zero-MDR protection continues for RuPay debit-card transactions without a monetary ceiling, while UPI payments above Rs 2,000 would attract MDR.
The petitioner further challenged the absence of disclosed cost studies, methodology and enforceable safeguards to prevent the levy from being passed on to consumers.
The PIL also questioned the basis for fixing the Rs 2,000 transaction threshold and the Rs 1 lakh monthly receipt ceiling, arguing that no supporting data or rationale had been disclosed.
The petitioner submitted that the framework creates a financial “cliff”, as a Rs 2,001 transaction would attract a percentage-based levy while a Rs 2,000 transaction would not, potentially influencing the manner in which merchants structure transactions.
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