New Delhi: The Supreme Court on Monday refused to suspend the new Merchant Discount Rate (MDR) system for certain UPI payments above Rs 2,000. However, it sought replies from the Centre, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) on a petition challenging the system.
The case raises questions about the legal basis of the charge. The petitioner has questioned how the charge can be imposed when the government will not collect the money.
A three-judge bench headed by Chief Justice of India Surya Kant, along with Justices Joymalya Bagchi and V Mohana, heard the petition filed by advocate Anjan Datta.
The judges asked the Centre to explain the nature of the MDR. Additional Solicitor General N Venkataraman, appearing for the Centre, said the MDR was neither a tax nor a fee collected by the government.
The Centre said the money would remain within the payment system. It would be shared by banks, payment service providers and other agencies involved in processing UPI transactions.
The court has given the Centre, RBI and NPCI four weeks to file their replies, as reported by NDTV.
MDR Applies To Select UPI Payments
The new rules will not mean that every UPI payment above Rs 2,000 will carry a charge for the customer.
The MDR will apply only to selected person-to-merchant, or P2M, payments above Rs 2,000. The standard rate for these transactions will be 0.4 per cent.
The charge will be limited to Rs 300 for transactions of Rs 75,000 or more. For example, the MDR on an eligible payment of Rs 10,000 would be Rs 40.
The charge will be applied within the merchant payment system. Customers should not be asked to pay it separately, according to the government.
The Finance Ministry has also said UPI apps cannot add platform fees or hidden charges for users because of the new MDR system.
UPI payments between two individuals will continue to be free, regardless of the amount. Payments to merchants of up to Rs 2,000 will also remain outside the MDR system.
Small merchants in the specified category who receive up to Rs 1 lakh a month through UPI QR codes will continue to pay zero MDR. The government estimates that about 96 per cent of UPI merchant payments will not be affected.
This means a customer paying Rs 1,500 to a shopkeeper through UPI will not have to pay an additional MDR.
Some sectors will have a fixed charge of Rs 5 for payments above Rs 2,000. These include railways, telecom, insurance, fuel and agricultural inputs.
Payments linked to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02 per cent. The charge will be capped at Rs 300.
Consumers may see little immediate effect because the MDR is intended to remain within the merchant-payment network, said Abhishek Bhilwaria, Partner at BhilwariaFinserv.
“The immediate impact on consumers may be limited because the framework is designed to keep the MDR within the merchant payment ecosystem,” he told NDTV.
However, Bhilwaria said the larger concern was whether businesses would eventually shift the cost to customers. “The bigger question is about who ultimately bears the cost. The petitioner has argued that businesses could pass the additional expense on to consumers.”
The Centre has said the MDR will not form part of government revenue and that merchants should not charge customers for it.
