29 September 2026 Punjab Khabarnama Bureau : The Supreme Court has questioned the Centre over the legal basis of the UPI merchant discount rate (MDR), asking how the proposed charge can be characterised if it is neither a tax nor a fee.
The court’s observation came during a hearing concerning the government’s policy on UPI transactions and the financial implications for banks and payment service providers.
The bench questioned the Centre about the nature of the proposed mechanism and whether it could amount to “expropriation” if money is effectively taken from one set of stakeholders without being classified as a tax or fee.
The issue relates to the merchant discount rate, a charge traditionally associated with digital payment transactions and shared among banks, payment processors and other participants in the payments ecosystem.
The government has promoted UPI as a low-cost digital payment system, with zero MDR on many transactions. The absence of MDR has, however, raised concerns among banks and payment companies about how the infrastructure and operational costs of processing transactions should be recovered.
The Supreme Court’s questions focus on the legal and economic character of any mechanism introduced to address this issue. The government is expected to explain the statutory basis and how such a system would operate without being treated as a conventional tax or fee.
The matter could have implications for India’s digital payments ecosystem, particularly banks, payment service providers and merchants that rely heavily on UPI.
The court has not issued a final ruling on the issue, and the government’s response will be important in determining how the proposed framework is viewed under law.
The proceedings highlight the broader challenge of balancing free or low-cost digital payments for consumers and merchants with the financial sustainability of the institutions that operate and maintain the UPI ecosystem.