NEW DELHI — Merchants cannot pass on the new UPI merchant fee to customers, and UPI apps cannot add a platform fee of their own, the National Payments Corporation of India (NPCI) has told the Supreme Court, defending the revised merchant discount rate (MDR) framework against a legal challenge, LiveLaw reported.

Source: LiveLaw

NPCI's counter-affidavit, filed on November 3, answers a petition by advocate Anjan Datta challenging the amendment to Section 10A of the Payment and Settlement Systems Act, 2007 — brought in through the Taxation and Other Laws (Amendment) Act, 2026 — the Finance Ministry notification that followed, and NPCI's revised MDR framework announced in September. The Supreme Court had in September sought an explanation for the move to charge for UPI payments above Rs 2,000, and on September 28 it refused to stay the decision.

Only about 4% of merchant payments are charged

The MDR, capped at 0.4%, applies only to person-to-merchant (P2M) transactions above Rs 2,000. NPCI told the court that this means the charge will effectively apply to only about 4% of merchant transactions, while approximately 96% of all P2M payments will remain unaffected — either because they are below the Rs 2,000 threshold or because they are covered by the zero-MDR framework for small merchants. Person-to-person transfers, and payments to small merchants in the P2PM category, stay completely free.

Merchants who receive up to Rs 1 lakh a month through UPI QR codes continue to pay zero MDR, and NPCI said a dedicated fund financed by a 5% contribution from MDR collections will promote UPI adoption among small merchants with annual turnover of up to Rs 20 lakh. The corporation, represented by Additional Solicitor General N. Venkataraman, argued that the framework is necessary for the long-term sustainability of the UPI ecosystem, for investment in payment infrastructure, and for stronger cybersecurity and fraud prevention, The Hindu BusinessLine reported.

Source: The Hindu BusinessLine

"Zero MDR is no longer sustainable"

NPCI told the court, in an affidavit placed before a bench headed by Chief Justice of India Surya Kant, that a zero-MDR regime for all UPI transactions is no longer sustainable, because the functional costs of the phenomenally expanding digital payments industry would otherwise burn into the public exchequer. It pointed to August 2026, when UPI processed 24.51 billion transactions worth approximately Rs 29.82 lakh crore — its highest-ever monthly volume. NPCI also rejected fears that merchants would quietly raise prices across the board, saying a charge confined to a small fraction of transactions above a set value leaves little scope for repricing an entire customer base.

The corporation has also raised a preliminary objection to the petition itself, submitting that NPCI is not 'State' under Article 12 of the Constitution and that its actions are therefore not amenable to the Supreme Court's writ jurisdiction under Article 32. The fee has in any case not yet begun: although the framework was first expected to start on October 15, NPCI has postponed implementation to a date immediately after Diwali, to be notified separately. What happens next depends on the court's hearing of the challenge — and on whether the notified start date lands before or after the court rules.

Source: The Daily Jagran