Customers will not have to pay additional fees when making UPI payments, as the National Payments Corporation of India (NPCI) has clarified before the Supreme Court that the revised Merchant Discount Rate (MDR) mechanism does not permit merchants to recover these charges from consumers.
The clarification was submitted through an affidavit in response to concerns surrounding the new UPI pricing arrangement. NPCI told a bench led by Chief Justice of India Surya Kant that payment applications cannot collect platform fees or impose any additional charges on users for carrying out UPI transactions. The court had earlier asked the Centre and NPCI to respond to the legal challenge but declined to put the revised framework on hold.
Dispute Centres On Changes To Digital Payment Rules
The case stems from a challenge to the amendment of Section 10A of the Payment and Settlement Systems Act, 2007, brought through the Taxation and Other Laws (Amendment) Act, 2026. The petitioner has also questioned the Finance Ministry’s notification and the pricing guidelines subsequently issued by NPCI.
A key concern was whether businesses would indirectly recover the additional payment costs by raising the prices of goods and services. NPCI dismissed this possibility, arguing that a charge applicable to a limited number of high-value transactions would not justify changing prices for all customers.
Small Merchants And Regular Transfers Remain Exempt
Under the revised arrangement, MDR of up to 0.4% is applicable only when a person makes a payment to a merchant exceeding Rs 2,000.
NPCI’s calculations suggest that the charge would cover just 4% of merchant transactions. The remaining 96% of person-to-merchant (P2M) payments would continue without MDR, ensuring that the revised structure has no impact on the majority of transactions.
The exemption also covers person-to-person (P2P) money transfers. Small businesses falling under the P2PM category, defined as merchants receiving monthly inward credits of up to Rs 1 lakh, will likewise remain outside the MDR framework.
Non-Compliance Could Cost Providers UPI Access
NPCI has also made it clear that payment companies cannot treat the restriction on customer charges as an optional guideline. The condition is compulsory and is supported by contractual provisions governing participation in the UPI network.
Banks, Payment System Providers and Third Party Application Providers found violating these requirements could face regulatory action. NPCI has indicated that penalties may include the termination of UPI membership and withdrawal of access to its payment facilities.