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Informist, Wednesday, Sept. 16, 2026

 

NEW DELHI – A public interest litigation was filed in the Supreme Court Wednesday, seeking quashing of the government's move to levy a merchant discount rate of 0.4% on merchant payments made through the Unified Payments Interface on transactions above INR 2,000 from Oct. 15. Advocate Anjan Datta, the petitioner, argued that the newly introduced charges would ultimately affect common citizen. The imposition of merchant discount rate on commercial UPI transactions could have a wider impact on the public, as businesses may pass on the additional costs to consumers, said the petitioner. 

The petitioner has made the Ministry of Finance, the Reserve Bank of India, National Payments Corp. of India parties to the case. 

 

Earlier this week, the government said that while person-to-person transactions would remain completely free, the merchant discount rate will apply only to specified person-to-merchant transactions above INR 2,000, with the rate capped at INR 300 for transactions of INR 75,000 and above. No transaction fee, platform fee, or other charge can be imposed on individuals for sending or receiving money through UPI, it said. For merchants, payments up to INR 2,000 would remain free of the merchant discount rate, it had said. Small merchants, including street vendors and neighbourhood shops, receiving up to INR 100,000 a month through UPI QR codes under the person-to-person-merchant category would also continue to enjoy a zero merchant discount rate on all transactions. As a result, around 96% of merchant transactions are expected to remain unaffected, the government said.

 

The government said transactions above INR 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel, and agricultural inputs, would instead attract a flat merchant fee of INR 5 per transaction. It also specified railways, telecom, and insurance among the merchant categories covered by the flat fee.

 

For capital-market transactions, including payments to mutual funds, securities firms, stockbrokers and dealers, the merchant discount rate will be 0.02%, capped at INR 300 per transaction, it said. The government said the lower rate was aimed at promoting retail participation and financial inclusion in formal financial markets.

 

The government clarified that the merchant discount rate is not a tax or a charge collected by the government or National Payments Corp. of India. Instead, it would be distributed among participants in the payment ecosystem, including banks, payment service providers, and UPI application providers, to support the operation and expansion of the UPI ecosystem. UPI application providers will be prohibited from levying platform fees or hidden charges on users, while banks have been advised to ensure that merchants do not pass the merchant discount rate on to customers. Individuals will continue to have unlimited free use of UPI, with no monthly quotas or tiered caps.

 

Earlier, the government had notified that banks cannot levy any charge on UPI transactions of up to INR 2,000 and on RuPay-powered debit cards. "No bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment specified in paragraph above," the Department of Financial Services said in a gazette notification. 

 

Wednesday, bank stocks rose on expectations of higher revenue from the newly introduced merchant discount rate on some UPI transactions. Under the new UPI rules, the issuing bank, which is part of an online transaction, is expected to receive a larger share of the total fees collected from merchants. Of the 0.4% fee collected, around 0.3% will go to the issuing bank, 0.08% to the payment aggregator, and 0.04% to the acquiring bank, according to an analyst tracking the sector.  End  

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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