Category: Business News
The National Payments Corporation of India (NPCI), which runs UPI, has told the Supreme Court that merchants cannot pass the new UPI merchant fee on to customers. In a counter-affidavit dated 3 November 2026, reported on 5–6 November, NPCI said the fee is lawful and necessary to sustain the UPI ecosystem — and that the ban on passing it on is binding, not just a policy assurance.
NPCI also said UPI app providers cannot impose platform fees or other charges on users for making UPI payments.
What the fee is
The revised Merchant Discount Rate (MDR) applies only to person-to-merchant (P2M) UPI payments above ₹2,000:
- 0.4% on P2M payments above ₹2,000, capped at ₹300 per payment (the cap is reached at ₹75,000).
- Flat ₹5 for selected industry categories above ₹2,000.
- 0.02% for a capital-market tier, capped at ₹300.
The fee applies to only about 4% of merchant transactions. Around 96% of P2M transactions are ₹2,000 or less and stay free.
What stays free
- Person-to-person transfers stay completely free — they are about 70% of all UPI transactions.
- Small merchants in the P2PM category — those receiving up to ₹1 lakh a month in UPI credits — pay zero MDR.
- Consumers pay nothing: the MDR is a merchant-side fee, and NPCI says a payer bank or UPI app that fails to stop the fee being passed on to the customer would breach its service-level agreements with NPCI.
A fund financed by a 5% contribution from MDR collections will promote UPI adoption among small merchants with annual turnover of up to ₹20 lakh.
The fee has not started yet
The original circular set 15 October 2026 as the implementation date, but NPCI postponed it to “immediately post Diwali” — Diwali is on 8 November 2026 — at a date to be notified separately. No confirmed go-live date has been announced.
The Supreme Court refused a stay on the fee on 28 September 2026. The petition, by advocate Anjan Datta, challenges the amendment to Section 10A of the Payment and Settlement Systems Act, 2007, introduced through the Taxation and Other Laws (Amendment) Act, 2026, and the Centre’s notification of 14 September 2026, under which RuPay debit card transactions are exempt without any value limit and UPI transactions up to ₹2,000 are exempt.
For scale, UPI hit a record 25.47 billion transactions in October 2026.
Sources: LiveLaw; MediaNama, 6 November 2026; Hindu BusinessLine, 5 November 2026; Elets BFSI.
