The National Payments Corporation of India (NPCI) has informed the Supreme Court that merchants cannot pass Merchant Discount Rate (MDR) charges on to customers under the revised Unified Payments Interface (UPI) pricing structure.

In an affidavit filed before a bench headed by Chief Justice of India Surya Kant, the NPCI clarified that "UPI application providers cannot impose platform fees or other charges on users for making payments through the Unified Payments Interface (UPI)". The apex court had earlier sought responses from the Centre and NPCI while declining to grant an interim stay on the revised rules.

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Legal Challenge To Payment Act Amendment

The petition challenged the amendment to Section 10A of the Payment and Settlement Systems Act, 2007, introduced via the Taxation and Other Laws (Amendment) Act, 2026, alongside the Finance Ministry's subsequent notification and the NPCI's updated framework.

Addressing fears that merchants might inflate retail prices to absorb the new fee, the NPCI argued that "the apprehension that the MDR Framework will result in quiet revision of prices is also misconceived". The corporation pointed out that "a measure confined so narrowly in its incidence affords less scope for merchants to recalibrate their pricing across their entire customer base merely on account of a charge that arises only occasionally and only above a defined value".

Over 96% Of UPI Transactions To Remain Completely Free

Reassuring consumers, the NPCI highlighted that the MDR, capped at 0.4 per cent, applies only to person-to-merchant (P2M) transactions exceeding Rs 2,000.

The affidavit noted that "MDR not exceeding 0.4 per cent will apply to P2M transactions above Rs 2,000, which means effectively, the said MDR will apply to only about 4 per cent of merchant transactions, and approximately 96 per cent of all P2M will remain unaffected".

Furthermore, all person-to-person (P2P) transfers and payments made to small merchants under the P2PM category, covering merchants receiving monthly inward credits of up to Rs 1 lakh, will "continue to attract no MDR".

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Mandatory Direction Backed By Strict Penalties

Defending the policy, the corporation emphasised that the restriction against passing MDR costs onto consumers was "not merely a policy assurance but a mandatory direction backed by contractual enforcement mechanisms".

The NPCI warned that any non-compliance would invite immediate regulatory action against banks, Payment System Providers (PSPs), and Third Party Application Providers (TPAPs), "including possible termination of their UPI membership and facilities".

(With Inputs From Jagran.com And PTI)