The issue of imposing MDR charges on certain UPI transactions has reached the Supreme Court. NPCI defended the move, saying it is necessary to maintain the digital payment system.
Is charging on UPI legal or not?
If you make a payment using UPI at a shop, mall, or other business location, a related issue is currently under discussion in the Supreme Court. The question is whether merchants accepting payments through UPI can be charged a Merchant Discount Rate (MDR). The National Payments Corporation of India (NPCI) presented its position in the Supreme Court on November 3. NPCI argues that this charge is necessary to operate and maintain the digital payment system.
This issue isn't just about the fees charged on UPI payments. It also involves the question of whether NPCI has the authority to charge merchants this fee under current law, and whether the implementation process is legal.
When will MDR charge be levied on UPI?
Merchant Discount Rate (MDR) is a fee paid to businesses for using digital payments. This amount is shared between banks and payment service providers that offer various payment services. Under the new rules, there will be no charge for any person-to-person (P2P) UPI transfers. Merchant payments up to ₹2,000 will also be free. Furthermore, eligible small businesses receiving payments up to ₹1 lakh per month through UPI QR codes are also exempt from MDR.
However, a 0.4% MDR has been imposed on certain merchant transactions exceeding ₹2,000. This will be capped at ₹300 for transactions of ₹75,000 or more. A flat charge of ₹5 will apply to certain sectors, and a separate rate of 0.02% will apply to capital market-related transactions. According to the Finance Ministry's estimates, approximately 96% of merchant transactions will remain unaffected by this arrangement.
What questions were raised in the Supreme Court?
The petition, filed by lawyer Anjan Dutta, challenges the amended Section 10A of the Payment and Settlement Systems Act 2007 and the central government's notification. It also questions the central government's September 14th notification and the MDR framework announced on September 15th.
They question how the government has the authority to decide which digital payments are subject to charges and which are not. However, the petition also objects to the differential treatment of UPI and RuPay debit cards.
What did NPCI say in its defense?
In its response filed in the Supreme Court, NPCI stated that Sections 20 and 21 of the PSS Act empower it to determine the terms and conditions of its payment system, including applicable charges. It also stated that MDR is not a tax but a commercial charge levied for digital payment services.
