SC asks Centre to explain UPI charges above ₹2,000, refuses to stay levy | Finance News

The framework provides for a 0.4 per cent MDR on specified person-to-merchant (P2M) UPI transactions above ₹2,000. The charge is capped at ₹300 for transactions of ₹75,000 or more.

Centre explains basis for charges

Additional Solicitor General N Venkataraman, appearing for the Centre, told the court that the charges would come into effect from October 15. He said around 96 per cent of transactions would remain outside the charge and that MDR for essential services would be capped at ₹5.

“It is neither a tax nor a fee,” the ASG said, as quoted by the news report.

“We need these facts on affidavit. It’s more of a technical issue,” CJI Surya Kant said.

Justice Bagchi questioned the legal basis for the levy. “Is it tax or a fee? If not a fee, what is the executive basis for making this expropriation? What is the service?” he asked.

The ASG said, “It is not an expropriation”, and maintained that the government would not receive any part of the charge. He said the amount would be a settlement fee shared within the payment ecosystem between banks and payment aggregators.

According to the Centre’s submission, banks incur costs while processing electronic transactions. Unlike card payments, UPI transactions have so far largely remained outside such charges. The government has argued that the charges are needed to support the functioning of the UPI ecosystem.

SC questions legal basis

Justice Bagchi also referred to Section 269SU of the Income Tax Act, which requires certain businesses meeting specified turnover criteria to provide electronic payment facilities to customers.

“269 permits a transfer… if it permits transfer, so cash from one assessee moves to another… then what is the character of receipt. In UPI who gets it?… We are not on the [coverage]. We are on legal incidence. What is the source of legal incidence of this?” Justice Bagchi asked.

The court subsequently issued notices to the Centre, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI).

The petitioner then sought a stay on the new framework, arguing that the charges could encourage an increase in cash and black-money transactions. The Bench, however, refused to grant interim relief.

What does the petition challenge?

The PIL has been filed against the Union government, RBI, NPCI and the UPI & Services Steering Committee.

The petitioner has challenged the September 14 notification and the MDR framework announced on September 15.

The plea states that the levy could have a wider impact because businesses may eventually pass on the additional cost to consumers.

Which UPI transactions will remain free?

The new rules do not impose a charge on every UPI payment. Person-to-person (P2P) UPI transfers will remain free, irrespective of the amount. Payments to merchants of up to ₹2,000 will also remain outside the MDR framework.

The framework also retains zero MDR for small merchants receiving up to ₹1 lakh a month through UPI QR codes under the person-to-person merchant (P2PM) category.

The September 14 Finance Ministry notification protects specified electronic payments, including UPI transactions up to ₹2,000 and RuPay debit card payments, from direct or indirect charges on persons making or receiving the payments.

How much is the MDR?

MDR is a fee for processing a merchant payment. It is collected within the payment ecosystem and distributed among participating entities such as banks and payment service providers. It is not a tax collected by the government or NPCI.

For general P2M UPI transactions above ₹2,000, the MDR has been set at 0.4 per cent, subject to a ₹300 cap for transactions of ₹75,000 and above.

Certain essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 on transactions above ₹2,000. Capital market transactions will attract a lower MDR of 0.02 per cent, capped at ₹300.

Under the framework, banks have been advised to ensure that merchants do not pass the MDR on to customers. UPI app providers have also been barred from imposing platform fees or hidden charges on users.