Supreme Court to Hear Plea Against 0.4% MDR on UPI Payments Above ₹2,000

On 27 September 2026 the Supreme Court agreed to take up a public interest litigation challenging the new Merchant Discount Rate on UPI payments. The Centre has fixed a 0.4% MDR on person-to-merchant UPI transactions above ₹2,000, effective 15 October 2026. This ends a long spell in which UPI merchant payments carried no charge at all. The petition questions the amended Section 10A of the Payment and Settlement Systems Act, 2007. For exams the item links digital payments, NPCI, banking regulation and judicial review of economic policy.

What Happened

The Supreme Court on 27 September 2026 agreed to hear a public interest litigation challenging the Merchant Discount Rate now imposed on high-value UPI merchant payments. The matter was listed before a bench of Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice V Mohana for 28 September 2026. The petitioner is Advocate Anjan Datta. The immediate trigger is the MDR framework notified in September 2026, which takes effect on 15 October 2026.

When & Where

The listing took place on 27 September 2026 at the Supreme Court of India in New Delhi. The MDR framework itself applies across India wherever UPI is accepted. India is the world's largest retail real-time payments market by transaction count, so a pricing change here has global significance for digital payment design.

Who Is Involved

Supreme Court of India — hearing the constitutional challenge to the levy.
Chief Justice of India Surya Kant — heads the bench, with Justice Joymalya Bagchi and Justice V Mohana.
Advocate Anjan Datta — the petitioner in the public interest litigation.
Union Government (Ministry of Finance) — set the policy and gave the rationale for reintroducing MDR.
National Payments Corporation of India (NPCI) — announced the operating framework for the new rates.
Reserve Bank of India — regulates payment systems under the Payment and Settlement Systems Act, 2007.
Banks and UPI app providers — advised not to pass the charge on to customers.

How It Works

Threshold first. Every UPI person-to-merchant payment is checked against the ₹2,000 mark. Below it, nothing changes. This keeps small everyday payments free, which is where most merchant transactions sit.
Rate applied above the threshold. A payment above ₹2,000 attracts 0.4% of the transaction value as MDR. The percentage form means the charge scales with the size of the payment.
Cap on large payments. For payments of ₹75,000 and above the charge stops rising and is capped at ₹300. Without a cap, a percentage levy would make high-value trade payments unviable on UPI.
Lower rates for sensitive sectors. Railways, telecom, insurance, fuel and agricultural inputs pay a flat ₹5 above ₹2,000, because these are essential, thin-margin, high-volume categories.
Special rate for capital markets. Securities, mutual funds and stockbroker payments attract only 0.02%, capped at ₹300, reflecting very large ticket sizes and wafer-thin intermediation margins.
Who bears it. The charge sits inside the merchant payments ecosystem. Banks have been advised not to recover it from customers, and UPI apps are barred from adding hidden fees.

Why It Matters

Economic. MDR creates a revenue stream for banks and payment service providers, who have carried UPI's running costs while earning nothing on merchant volumes.
Policy. It marks a shift away from a fully subsidised digital-payments model towards a partially priced one, which affects the incentive to keep expanding UPI acceptance.
Constitutional. The challenge raises judicial review of economic policy: how far courts can test a fiscal levy for statutory backing, consultation and reasonable classification.
Social. Small merchants and everyday consumers are shielded by the ₹2,000 threshold and the small-merchant exemption, so the burden is concentrated on larger businesses.

Historical Background

UPI was launched by NPCI in 2016 as an interoperable, mobile-first retail payment system built on the Immediate Payment Service rails. Merchant payments on UPI and on RuPay debit cards were subsequently made free of MDR, and that zero-charge regime ran for close to six years before the present change. Payment systems in India have been regulated by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007, which supplies the statutory base for both the earlier waiver and the current levy.

Previous Related Events

2016: NPCI launched UPI, which grew into India's dominant retail payment channel by transaction count.
Zero-MDR regime: UPI and RuPay debit card merchant payments were exempted from MDR, and the exemption stayed in force for nearly six years.
September 2026: The Centre notified the new MDR framework and NPCI issued the operating rates, setting 15 October 2026 as the start date.

Static GK Connection

Payment and Settlement Systems Act, 2007: the law under which the Reserve Bank of India authorises and regulates payment systems in India. Section 10A is the provision at the centre of this dispute.
National Payments Corporation of India: the umbrella organisation for retail payments in India, set up by the Reserve Bank of India and the Indian Banks' Association.
Article 32 of the Constitution: allows a person to move the Supreme Court directly for enforcement of fundamental rights, and is the route through which public interest litigation of this kind reaches the Court.
Merchant Discount Rate: the fee a merchant pays to its bank and the wider payment chain for accepting a digital payment, normally shared among the acquiring bank, the issuing bank and the network.

India & World Comparison

India runs its retail real-time payment system as a public utility built by NPCI, while comparable systems elsewhere are largely bank-owned or private. Card networks in most markets charge merchants an interchange-plus fee, and India's earlier zero-MDR model for UPI was unusual in removing that charge entirely. The 0.4% rate now set for high-value UPI merchant payments is lower than typical credit card MDR levels, and is structured with caps and sector carve-outs that most card schemes do not use.

Future Impact

15 October 2026: the MDR framework comes into force, and merchants above the ₹2,000 threshold begin paying the charge.
28 September 2026: the Supreme Court takes up the petition, and its view will decide whether the framework survives in its present form.
Banking revenue: banks and payment service providers gain a fee stream on UPI merchant volumes for the first time in years.
Acceptance network: the industry will watch whether larger merchants steer customers towards cheaper instruments, which would shape UPI's growth in high-value retail.

🔑 Key Points for Revision

Supreme Court listed the UPI MDR petition on 27 September 2026 for hearing the next day.
Petitioner is Advocate Anjan Datta; the matter is a public interest litigation.
Bench: Chief Justice of India Surya Kant, Justice Joymalya Bagchi, Justice V Mohana.
MDR of 0.4% applies to UPI person-to-merchant payments above ₹2,000.
Charge is capped at ₹300 for payments of ₹75,000 and above.
Railways, telecom, insurance, fuel and agricultural inputs pay a flat ₹5 above ₹2,000.
Securities, mutual funds and stockbrokers pay 0.02% MDR, capped at ₹300.
Person-to-person UPI transfers stay free of MDR at all values.
Merchant payments up to ₹2,000 stay free of MDR.
Small merchants with monthly QR receipts up to ₹1 lakh pay no MDR.
The framework takes effect on 15 October 2026.
UPI was launched by NPCI in 2016.
Payment systems are regulated under the Payment and Settlement Systems Act, 2007.
The plea attacks the amended Section 10A of that Act.
The plea also alleges discriminatory treatment between UPI and RuPay debit cards.

🧠 Concept Link (Static GK Deep Dive)

Core Concept: Merchant Discount Rate and the regulation of digital payments in India

Definition: Merchant Discount Rate is the fee a merchant pays for accepting a digital payment, expressed as a percentage of the transaction value or as a flat amount.
Constitutional / Legal Basis: Payment systems in India operate under the Payment and Settlement Systems Act, 2007. Section 10A of that Act is the provision under challenge here. A petition of this kind reaches the Supreme Court under Article 32.
Economic Principle: A payment network has real running costs — switching, settlement, fraud control, dispute handling. MDR is how those costs are recovered from the party that gains most from accepting the payment, namely the merchant.
Link to this event: The Centre has restored MDR only above ₹2,000, so the levy is designed to fund the network without touching small everyday payments.
Origin & History: UPI was launched in 2016 by NPCI and merchant payments on it later became free of MDR, a position that held for close to six years.
Key milestone 1: September 2026 — the Centre notified the new MDR framework for UPI merchant payments.
Key milestone 2: 15 October 2026 — the date from which the rates apply.
Related Acts / Schemes / Treaties: Payment and Settlement Systems Act, 2007; the Digital India programme under which UPI acceptance expanded; RuPay, the domestic card network run by NPCI.
Nodal Ministry / Body: Ministry of Finance for policy; Reserve Bank of India as the regulator; NPCI as the operator of UPI.
India-specific relevance: UPI carries a very large share of India's retail merchant payments, so even a small pricing change reaches crores of transactions.
Global comparison: Most countries allow card networks to charge merchants an interchange-based fee. India's zero-MDR model for UPI was the outlier, and the new 0.4% rate remains below common credit card MDR levels.
Common exam angle: Examiners ask who regulates payment systems, which Act governs them, what NPCI is, and who bears MDR.
Easy memory hook: "2,000 is the gate, 0.4 is the rate, 300 is the ceiling, 15 October the date."

❓ Practice MCQs

Q1. What is the Merchant Discount Rate fixed on UPI person-to-merchant transactions above ₹2,000? [Easy]

A) 0.02%

B) 0.4%

C) 1.0%

D) 2.0%

Answer: B

Explanation: The framework sets 0.4% MDR on UPI person-to-merchant payments above ₹2,000.

Q2. From which date does the new UPI MDR framework take effect? [Easy]

A) 15 September 2026

B) 1 October 2026

C) 15 October 2026

D) 1 January 2027

Answer: C

Explanation: The framework applies from 15 October 2026.

Q3. The Merchant Discount Rate on a UPI merchant payment of ₹90,000 would be limited to which amount? [Moderate]

A) ₹5

B) ₹180

C) ₹300

D) ₹360

Answer: C

Explanation: For payments of ₹75,000 and above the charge is capped at ₹300 per transaction.

Q4. Which of the following payment categories attracts a flat ₹5 charge above ₹2,000 under the new framework? [Moderate]

A) Mutual fund purchases

B) Railway ticket payments

C) Person-to-person transfers

D) Jewellery purchases

Answer: B

Explanation: Railways, telecom, insurance, fuel and agricultural inputs attract a flat ₹5 per transaction above ₹2,000.

Q5. Which statutory provision's amended form has been challenged in the petition before the Supreme Court? [Moderate]

A) Section 10A of the Payment and Settlement Systems Act, 2007

B) Section 45 of the Reserve Bank of India Act, 1934

C) Section 8 of the Companies Act, 2013

D) Section 66A of the Information Technology Act, 2000

Answer: A

Explanation: The plea questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007.

Q6. Which body announced the operating framework of rates for the new UPI Merchant Discount Rate? [Tricky]

A) Securities and Exchange Board of India

B) National Payments Corporation of India

C) Insurance Regulatory and Development Authority of India

D) Competition Commission of India

Answer: B

Explanation: NPCI, the umbrella organisation for retail payments, announced the rate framework.

Q7. A customer sends ₹5,000 to a friend through UPI. What MDR applies? [Tricky]

A) 0.4%

B) 0.02%

C) Flat ₹5

D) No MDR

Answer: D

Explanation: Person-to-person UPI transfers carry no MDR regardless of the amount.

Q8. Payments to stockbrokers and mutual funds attract which MDR under the framework? [Tricky]

A) 0.02%, capped at ₹300

B) 0.4%, capped at ₹300

C) Flat ₹5 per transaction

D) 0.4% with no cap

Answer: A

Explanation: Securities, mutual funds and stockbroker payments attract 0.02% MDR with a cap of ₹300.

📜 Previous Year Question Style (PYQ)

PYQ 1:

Under which legislation does the Reserve Bank of India authorise and regulate payment systems in the country?

A) The Banking Regulation Act, 1949

B) The Payment and Settlement Systems Act, 2007

C) The Foreign Exchange Management Act, 1999

D) The Negotiable Instruments Act, 1881

Answer: B

Explanation: The Payment and Settlement Systems Act, 2007 governs the authorisation and regulation of payment systems in India, and Section 10A of this Act is at the centre of the present dispute.

PYQ 2:

Consider the following statements regarding the UPI Merchant Discount Rate framework:

The Merchant Discount Rate applies to person-to-merchant transactions above ₹2,000.
Person-to-person UPI transfers attract the same Merchant Discount Rate as merchant payments.
The Merchant Discount Rate is capped at ₹300 for payments of ₹75,000 and above.

Which of the above statements is/are correct?

A) 1 only

B) 1 and 2 only

C) 1 and 3 only

D) All of the above

Answer: C

Explanation: Statements 1 and 3 match the framework. Statement 2 is wrong because person-to-person transfers carry no Merchant Discount Rate at any value.

PYQ 3:

Assertion (A): The new Merchant Discount Rate framework leaves the great majority of UPI merchant payments unaffected.

Reason (R): The Merchant Discount Rate is levied only on person-to-merchant transactions above ₹2,000.

A) Both A and R are true, and R is the correct explanation of A

B) Both A and R are true, but R is not the correct explanation of A

C) A is true but R is false

D) A is false but R is true

Answer: A

Explanation: The levy begins only above ₹2,000, and merchant payments up to that value form the bulk of UPI merchant volumes, so the threshold is exactly why most payments stay untouched.

✍️ Mains Answer Pointers

Question 1 (150 words): Examine the rationale for reintroducing a Merchant Discount Rate on high-value UPI merchant payments.

The reintroduction of MDR rests on a simple proposition: a payment network that carries crores of transactions cannot run indefinitely without a revenue model. For close to six years UPI merchant payments carried no charge, and banks and payment service providers absorbed the cost of switching, settlement, fraud control and dispute resolution. The framework now sets 0.4% on person-to-merchant transactions above ₹2,000, effective 15 October 2026, while leaving smaller payments free.

The design shows careful targeting. The ₹2,000 threshold protects everyday retail payments, the ₹300 cap for payments of ₹75,000 and above prevents the levy from punishing large transactions, and the flat ₹5 rate for railways, telecom, insurance, fuel and agricultural inputs shields thin-margin essential sectors. Small merchants receiving up to ₹1 lakh a month through QR codes stay exempt.

The way forward lies in ensuring the charge is genuinely absorbed within the merchant ecosystem and not quietly transferred to customers.

Question 2 (250 words): Digital payment pricing in India sits at the meeting point of economic policy and judicial review. Discuss with reference to the Merchant Discount Rate on UPI.

India's digital payments architecture was built on a deliberate policy choice: make merchant acceptance free so that adoption spreads fast. UPI, launched by NPCI in 2016, grew on that model, and merchant payments on UPI and RuPay debit cards were exempted from MDR for close to six years. The exemption achieved scale but left the cost of running the network unpriced.

The framework notified in September 2026 changes that. A rate of 0.4% applies to person-to-merchant payments above ₹2,000 from 15 October 2026, with a ₹300 cap at ₹75,000 and above, a flat ₹5 for essential sectors, and 0.02% for securities and mutual funds. Person-to-person transfers and payments up to ₹2,000 remain free.

The petition before the Supreme Court moves the question from economics to constitutional law. It argues that the levy lacks adequate statutory safeguards, transparency and public consultation, and it questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007. It further alleges arbitrary discrimination between UPI and RuPay debit cards. A bench of Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice V Mohana will consider it.

The deeper issue is institutional. Courts traditionally give the executive wide latitude in economic policy, intervening mainly where a levy lacks statutory backing or where classification is arbitrary. The balanced course is for the government to place its statutory basis and consultation record clearly on the table, so that a policy touching crores of daily transactions rests on secure legal ground rather than on administrative convenience.

⚠️ Examiner Trap

Trap 1: Students confuse the ₹2,000 threshold with a cap on the charge. The correct fact is that ₹2,000 is the value above which MDR begins, while the cap on the charge is ₹300 for payments of ₹75,000 and above.
Trap 2: A common wrong assumption is that the Supreme Court has struck down or stayed the Merchant Discount Rate. The reality is that on 27 September 2026 the Court only listed the petition for hearing; no ruling on the levy had been delivered.
Trap 3: Many students miss that person-to-person UPI transfers are completely outside the framework. Always remember that MDR applies only to person-to-merchant payments above ₹2,000, and never to person-to-person transfers.

Supreme Court to Hear Plea Against 0.4% MDR on UPI Payments Above ₹2,000

What Happened

When & Where

Who Is Involved

Supreme Court of India — hearing the constitutional challenge to the levy.
Chief Justice of India Surya Kant — heads the bench, with Justice Joymalya Bagchi and Justice V Mohana.
Advocate Anjan Datta — the petitioner in the public interest litigation.
Union Government (Ministry of Finance) — set the policy and gave the rationale for reintroducing MDR.
National Payments Corporation of India (NPCI) — announced the operating framework for the new rates.
Reserve Bank of India — regulates payment systems under the Payment and Settlement Systems Act, 2007.
Banks and UPI app providers — advised not to pass the charge on to customers.

How It Works

Threshold first. Every UPI person-to-merchant payment is checked against the ₹2,000 mark. Below it, nothing changes. This keeps small everyday payments free, which is where most merchant transactions sit.
Rate applied above the threshold. A payment above ₹2,000 attracts 0.4% of the transaction value as MDR. The percentage form means the charge scales with the size of the payment.
Cap on large payments. For payments of ₹75,000 and above the charge stops rising and is capped at ₹300. Without a cap, a percentage levy would make high-value trade payments unviable on UPI.
Lower rates for sensitive sectors. Railways, telecom, insurance, fuel and agricultural inputs pay a flat ₹5 above ₹2,000, because these are essential, thin-margin, high-volume categories.
Special rate for capital markets. Securities, mutual funds and stockbroker payments attract only 0.02%, capped at ₹300, reflecting very large ticket sizes and wafer-thin intermediation margins.
Who bears it. The charge sits inside the merchant payments ecosystem. Banks have been advised not to recover it from customers, and UPI apps are barred from adding hidden fees.

Why It Matters

Economic. MDR creates a revenue stream for banks and payment service providers, who have carried UPI's running costs while earning nothing on merchant volumes.
Policy. It marks a shift away from a fully subsidised digital-payments model towards a partially priced one, which affects the incentive to keep expanding UPI acceptance.
Constitutional. The challenge raises judicial review of economic policy: how far courts can test a fiscal levy for statutory backing, consultation and reasonable classification.
Social. Small merchants and everyday consumers are shielded by the ₹2,000 threshold and the small-merchant exemption, so the burden is concentrated on larger businesses.

Historical Background

Previous Related Events

2016: NPCI launched UPI, which grew into India's dominant retail payment channel by transaction count.
Zero-MDR regime: UPI and RuPay debit card merchant payments were exempted from MDR, and the exemption stayed in force for nearly six years.
September 2026: The Centre notified the new MDR framework and NPCI issued the operating rates, setting 15 October 2026 as the start date.

Static GK Connection

Payment and Settlement Systems Act, 2007: the law under which the Reserve Bank of India authorises and regulates payment systems in India. Section 10A is the provision at the centre of this dispute.
National Payments Corporation of India: the umbrella organisation for retail payments in India, set up by the Reserve Bank of India and the Indian Banks' Association.
Article 32 of the Constitution: allows a person to move the Supreme Court directly for enforcement of fundamental rights, and is the route through which public interest litigation of this kind reaches the Court.
Merchant Discount Rate: the fee a merchant pays to its bank and the wider payment chain for accepting a digital payment, normally shared among the acquiring bank, the issuing bank and the network.

India & World Comparison

Future Impact

15 October 2026: the MDR framework comes into force, and merchants above the ₹2,000 threshold begin paying the charge.
28 September 2026: the Supreme Court takes up the petition, and its view will decide whether the framework survives in its present form.
Banking revenue: banks and payment service providers gain a fee stream on UPI merchant volumes for the first time in years.
Acceptance network: the industry will watch whether larger merchants steer customers towards cheaper instruments, which would shape UPI's growth in high-value retail.

🔑 Key Points for Revision

Supreme Court listed the UPI MDR petition on 27 September 2026 for hearing the next day.
Petitioner is Advocate Anjan Datta; the matter is a public interest litigation.
Bench: Chief Justice of India Surya Kant, Justice Joymalya Bagchi, Justice V Mohana.
MDR of 0.4% applies to UPI person-to-merchant payments above ₹2,000.
Charge is capped at ₹300 for payments of ₹75,000 and above.
Railways, telecom, insurance, fuel and agricultural inputs pay a flat ₹5 above ₹2,000.
Securities, mutual funds and stockbrokers pay 0.02% MDR, capped at ₹300.
Person-to-person UPI transfers stay free of MDR at all values.
Merchant payments up to ₹2,000 stay free of MDR.
Small merchants with monthly QR receipts up to ₹1 lakh pay no MDR.
The framework takes effect on 15 October 2026.
UPI was launched by NPCI in 2016.
Payment systems are regulated under the Payment and Settlement Systems Act, 2007.
The plea attacks the amended Section 10A of that Act.
The plea also alleges discriminatory treatment between UPI and RuPay debit cards.

🧠 Concept Link (Static GK Deep Dive)

Core Concept: Merchant Discount Rate and the regulation of digital payments in India

Definition: Merchant Discount Rate is the fee a merchant pays for accepting a digital payment, expressed as a percentage of the transaction value or as a flat amount.
Constitutional / Legal Basis: Payment systems in India operate under the Payment and Settlement Systems Act, 2007. Section 10A of that Act is the provision under challenge here. A petition of this kind reaches the Supreme Court under Article 32.
Economic Principle: A payment network has real running costs — switching, settlement, fraud control, dispute handling. MDR is how those costs are recovered from the party that gains most from accepting the payment, namely the merchant.
Link to this event: The Centre has restored MDR only above ₹2,000, so the levy is designed to fund the network without touching small everyday payments.
Origin & History: UPI was launched in 2016 by NPCI and merchant payments on it later became free of MDR, a position that held for close to six years.
Key milestone 1: September 2026 — the Centre notified the new MDR framework for UPI merchant payments.
Key milestone 2: 15 October 2026 — the date from which the rates apply.
Related Acts / Schemes / Treaties: Payment and Settlement Systems Act, 2007; the Digital India programme under which UPI acceptance expanded; RuPay, the domestic card network run by NPCI.
Nodal Ministry / Body: Ministry of Finance for policy; Reserve Bank of India as the regulator; NPCI as the operator of UPI.
India-specific relevance: UPI carries a very large share of India's retail merchant payments, so even a small pricing change reaches crores of transactions.
Global comparison: Most countries allow card networks to charge merchants an interchange-based fee. India's zero-MDR model for UPI was the outlier, and the new 0.4% rate remains below common credit card MDR levels.
Common exam angle: Examiners ask who regulates payment systems, which Act governs them, what NPCI is, and who bears MDR.
Easy memory hook: "2,000 is the gate, 0.4 is the rate, 300 is the ceiling, 15 October the date."

❓ Practice MCQs

Q1. What is the Merchant Discount Rate fixed on UPI person-to-merchant transactions above ₹2,000? [Easy]

A) 0.02%

B) 0.4%

C) 1.0%

D) 2.0%

Answer: B

Explanation: The framework sets 0.4% MDR on UPI person-to-merchant payments above ₹2,000.

Q2. From which date does the new UPI MDR framework take effect? [Easy]

A) 15 September 2026

B) 1 October 2026

C) 15 October 2026

D) 1 January 2027

Answer: C

Explanation: The framework applies from 15 October 2026.

Q3. The Merchant Discount Rate on a UPI merchant payment of ₹90,000 would be limited to which amount? [Moderate]

A) ₹5

B) ₹180

C) ₹300

D) ₹360

Answer: C

Explanation: For payments of ₹75,000 and above the charge is capped at ₹300 per transaction.

Q4. Which of the following payment categories attracts a flat ₹5 charge above ₹2,000 under the new framework? [Moderate]

A) Mutual fund purchases

B) Railway ticket payments

C) Person-to-person transfers

D) Jewellery purchases

Answer: B

Explanation: Railways, telecom, insurance, fuel and agricultural inputs attract a flat ₹5 per transaction above ₹2,000.

Q5. Which statutory provision's amended form has been challenged in the petition before the Supreme Court? [Moderate]

A) Section 10A of the Payment and Settlement Systems Act, 2007

B) Section 45 of the Reserve Bank of India Act, 1934

C) Section 8 of the Companies Act, 2013

D) Section 66A of the Information Technology Act, 2000

Answer: A

Explanation: The plea questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007.

Q6. Which body announced the operating framework of rates for the new UPI Merchant Discount Rate? [Tricky]

A) Securities and Exchange Board of India

B) National Payments Corporation of India

C) Insurance Regulatory and Development Authority of India

D) Competition Commission of India

Answer: B

Explanation: NPCI, the umbrella organisation for retail payments, announced the rate framework.

Q7. A customer sends ₹5,000 to a friend through UPI. What MDR applies? [Tricky]

A) 0.4%

B) 0.02%

C) Flat ₹5

D) No MDR

Answer: D

Explanation: Person-to-person UPI transfers carry no MDR regardless of the amount.

Q8. Payments to stockbrokers and mutual funds attract which MDR under the framework? [Tricky]

A) 0.02%, capped at ₹300

B) 0.4%, capped at ₹300

C) Flat ₹5 per transaction

D) 0.4% with no cap

Answer: A

Explanation: Securities, mutual funds and stockbroker payments attract 0.02% MDR with a cap of ₹300.

📜 Previous Year Question Style (PYQ)

PYQ 1:

Under which legislation does the Reserve Bank of India authorise and regulate payment systems in the country?

A) The Banking Regulation Act, 1949

B) The Payment and Settlement Systems Act, 2007

C) The Foreign Exchange Management Act, 1999

D) The Negotiable Instruments Act, 1881

Answer: B

PYQ 2:

Consider the following statements regarding the UPI Merchant Discount Rate framework:

The Merchant Discount Rate applies to person-to-merchant transactions above ₹2,000.
Person-to-person UPI transfers attract the same Merchant Discount Rate as merchant payments.
The Merchant Discount Rate is capped at ₹300 for payments of ₹75,000 and above.

Which of the above statements is/are correct?

A) 1 only

B) 1 and 2 only

C) 1 and 3 only

D) All of the above

Answer: C

Explanation: Statements 1 and 3 match the framework. Statement 2 is wrong because person-to-person transfers carry no Merchant Discount Rate at any value.

PYQ 3:

Assertion (A): The new Merchant Discount Rate framework leaves the great majority of UPI merchant payments unaffected.

Reason (R): The Merchant Discount Rate is levied only on person-to-merchant transactions above ₹2,000.

A) Both A and R are true, and R is the correct explanation of A

B) Both A and R are true, but R is not the correct explanation of A

C) A is true but R is false

D) A is false but R is true

Answer: A

Explanation: The levy begins only above ₹2,000, and merchant payments up to that value form the bulk of UPI merchant volumes, so the threshold is exactly why most payments stay untouched.

✍️ Mains Answer Pointers

Question 1 (150 words): Examine the rationale for reintroducing a Merchant Discount Rate on high-value UPI merchant payments.

The way forward lies in ensuring the charge is genuinely absorbed within the merchant ecosystem and not quietly transferred to customers.

Question 2 (250 words): Digital payment pricing in India sits at the meeting point of economic policy and judicial review. Discuss with reference to the Merchant Discount Rate on UPI.

⚠️ Examiner Trap

Trap 1: Students confuse the ₹2,000 threshold with a cap on the charge. The correct fact is that ₹2,000 is the value above which MDR begins, while the cap on the charge is ₹300 for payments of ₹75,000 and above.
Trap 2: A common wrong assumption is that the Supreme Court has struck down or stayed the Merchant Discount Rate. The reality is that on 27 September 2026 the Court only listed the petition for hearing; no ruling on the levy had been delivered.
Trap 3: Many students miss that person-to-person UPI transfers are completely outside the framework. Always remember that MDR applies only to person-to-merchant payments above ₹2,000, and never to person-to-person transfers.