India’s Supreme Court refuses to pause 0.4% UPI merchant fee

India’s Supreme Court on Monday, September 28, 2026, refused to suspend the 0.4% merchant discount rate (MDR) that the government is introducing on UPI payments to merchants above ₹2,000. The fee, which withdraws UPI’s zero-MDR protection above ₹2,000 for the first time since the regime was introduced in December 2019, remains set for October 15.

A bench of Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana issued notice on a public interest litigation (PIL) filed by advocate Anjan Datta. It gave the government, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI) four weeks to file counter affidavits, UNI and The Hindu report. “It is less a legal and more a technical issue,” the bench observed, according to UNI.

The bench turns down an interim stay

Once notice was issued, counsel for the petitioner asked the bench, “Please stay it till then,” UNI reported. The bench refused, and The Hindu reports that Datta’s repeated pleas for an interim stay were all turned down. The four-week deadline runs to late October, after the October 15 start date, so the fee is set to apply before the respondents’ replies are due.

Judges ask what kind of charge the MDR is

The bench focused on the legal nature of the charge. “If it is not a tax or fee, what is the executive scope of making this expropriation? We want an explanation in an affidavit,” Justice Bagchi asked Additional Solicitor General N. Venkataraman, according to The Hindu. The Hindustan Times quotes the bench: “If it is a fee, it cannot be by way of an executive fiat. If not, then what is it?”

Venkataraman, appearing for the government, compared UPI with card payments. “There is a cost for doing debit/credit card transactions. UPI is not different,” he said, according to LiveLaw Biz. “Not one rupee from this will go to the government,” he added, as reported by the Hindustan Times. He called October 15 “the first milestone,” LiveLaw Biz reports. He also told the bench that 96% of people using the gateway were exempt, according to UNI and The Hindu. The Finance Ministry’s September 15 announcement puts the exempt share at about 96% of merchant transactions.

The petition targets the 2026 amendment and a steering committee

The PIL challenges the Finance Ministry’s September 14, 2026, Gazette notification under Section 10A of the Payment and Settlement Systems Act, 2007, as amended in 2026, LawBeat and LiveLaw Biz report. It also challenges the amended Section 10A, which, the petition says, lets the government decide by notification which electronic payment modes are protected from charges.

The plea says the rates, caps, and sector categories were set by press release and FAQs rather than a notified statutory instrument. It seeks disclosure of the authority of the UPI and Services Steering Committee, which it calls an NPCI-headed body, and says the thresholds rest on no published data. “A transaction of ₹2,001 attracts a percentage charge while one of ₹2,000 does not,” the petition states, as quoted by LawBeat.

The petitioner argues that a bare instruction against passing the fee on does not remove the burden: low-margin traders will absorb it in prices or working capital, or refuse UPI and split transactions. The plea asks the court to quash or suspend the framework above ₹2,000 or, failing that, to order a reconsideration after public consultation and an impact assessment.

The October 15 fee schedule stays as announced

The order leaves that schedule untouched. The merchant bears the charge. The Finance Ministry says banks have been advised to ensure that merchants do not pass it on to customers.