UPI's 0.4% MDR Explained: What the Supreme Court Decided

On September 28, 2026, the Supreme Court declined to halt the government's new Merchant Discount Rate (MDR) on UPI payments — which means the charge takes effect on October 15, 2026, as announced. A three-judge bench led by Chief Justice Surya Kant, with Justices Joymalya Bagchi and V. Mohana, refused interim relief on a public interest petition and instead asked the Centre, the RBI, and NPCI to explain the legal basis of the charge within four weeks.

What changes on October 15

• 0.4% MDR on specified person-to-merchant (P2M) UPI transactions above ₹2,000, capped at ₹300 per transaction (for payments of ₹75,000 and above).
• Flat ₹5 per transaction above ₹2,000 for essential services — railways, telecom, insurance, fuel, and agricultural inputs.
• 0.02% MDR (capped at ₹300) for capital-market payments like mutual funds and stockbrokers.

What stays free

• All person-to-person transfers — any amount, completely free.
• All merchant payments up to ₹2,000.
• Small merchants doing up to ₹1 lakh a month via UPI QR codes.
• Utility bills, OTT subscriptions, and automated recurring payments.

The government's position: roughly 96% of P2M transactions fall outside the charge entirely.

The crucial detail: who actually pays?

MDR is a merchant-side charge — it goes to banks and payment providers, not directly to you at checkout. But the petitioner's warning was practical, not technical: if shops start quietly refusing UPI for larger bills, customers could drift back toward cash — undoing years of digital-payments progress. The Court seemed to take the concern seriously without stopping the rollout, observing the issue was "more technical than legal" at this stage and demanding answers on affidavit. Justice Bagchi pressed the Centre directly: "If it is not a tax or fee, what is the executive scope of making this expropriation?"

One way or another, October 15 ends nearly six years of zero-MDR on covered UPI payments. The next hearing will decide whether the framework survives in its current form.