The Supreme Court of India on Monday declined to grant an interim stay on the central government's notification authorizing Merchant Discount Rate (MDR) levies on high-value commercial Unified Payments Interface (UPI) transactions starting October 15, 2026. While refusing to stall the executive rollout, a bench of the apex court issued formal notices to the Union Government, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI) seeking their counter-affidavits on a petition challenging the policy. Observing that the regulatory framework governing digital payment settlement architecture involves deep technical nuances rather than purely legal questions, the court directed all respondents to submit comprehensive replies within four weeks.

Clarifying the 0.4% MDR Structure: P2P Free and 96% Merchant Payments Untouched

Appearing before the apex bench, the central government submitted that nearly 96 percent of all retail users utilizing the domestic digital payment gateway remain entirely shielded from any additional financial implications. Under the revised guidelines, a 0.4 percent MDR is slated exclusively for high-value commercial Person-to-Merchant (P2M) transactions that exceed the ₹2,000 threshold. The government explicitly affirmed that normal Person-to-Person (P2P) transfers—such as remittances between friends, family, and personal bank accounts—will remain 100 percent free without any upper limit, preserving UPI’s primary utility as an open, accessible public digital infrastructure.

Strict Directives for Banks and Apps: Zero Passing of Fees and Ban on Hidden Charges

Addressing consumer apprehensions regarding doorstep merchant billing, the Ministry of Finance clarified through official FAQs that MDR is an internal operational cost borne within the commercial merchant payment ecosystem, not a consumer-facing surcharge. Scheduled commercial banks and acquiring entities have been handed strict regulatory instructions to verify that retail merchants do not unlawfully pass MDR burdens onto everyday shoppers at point-of-sale checkout counters. Furthermore, the central directive has explicitly prohibited third-party UPI applications and payment aggregators from exploiting the notification to levy arbitrary platform fees, convenience charges, or hidden transaction markups on retail digital users.