A public interest litigation has been filed before the Supreme Court challenging the Central government’s decision to allow merchant discount rates on select Unified Payments Interface transactions.
The petition, which the apex court has not yet taken up for hearing, was submitted on Wednesday, a day after the Union Ministry of Finance released the revised fee schedule.
Grounds Of The Legal Challenge
The petition contests a notification issued by the Centre on September 14 under Section 10A of the Payment and Settlement Systems Act, 2007. Under that order, statutory zero-charge protection was restricted to only two payment mechanisms: RuPay debit cards without any transaction ceiling, and UPI payments up to Rs 2,000.
According to the plea, this regulatory shift removes the zero-fee protection that had applied to all UPI payments exceeding Rs 2,000 since January 2020.
Proposed Fee Structure
The contested framework, announced via a Finance Ministry press release, is scheduled to come into effect on October 15.
Under the new rules, person-to-merchant UPI transactions above Rs 2,000 will be subject to a merchant discount rate of 0.4 per cent. For transactions valued at Rs 75,000 and higher, the fee will be capped at Rs 300.
The framework also outlines specific terms for selected industries. Transactions in sectors classified as essential and thin-margin will carry a flat charge of Rs 5, while transactions in capital markets will incur a merchant discount rate of 0.02 per cent.
Regulatory Oversight And Central Bank Stance
The legal challenge arises amid the Reserve Bank of India’s statutory responsibility as the regulator of domestic payment systems under the Payment and Settlement Systems Act. The National Payments Corporation of India, which operates the UPI network, functions under the central bank’s authorisation and supervision.
The central bank publicly supported the new tariff model a day after its announcement, stating in a post on X that introducing a merchant fee on payments above Rs 2,000 represents a vital step toward ensuring the long-term viability of the digital payments ecosystem.
The banking regulator added that the change would help UPI continue expanding, innovating, and serving users and merchants across the country, while noting that an equitable distribution of merchant discount rates among ecosystem participants would encourage investment in payment infrastructure.
