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Relevance: GS-II (Polity) | GS-III (Economy) | Source: The Hindu

The News: The days of totally free UPI for shopkeepers are ending. Starting October 2026, the government is adding a fee on large payments made to businesses. The Supreme Court didn’t block the rule, but it is asking the government a tough question: Do you actually have the legal power to do this?

1. Who Pays the New Fees?

The famous “Zero-fee” policy that made UPI a massive success is changing.

  • The 0.4% Cut: If you pay a business over ₹2,000 using UPI, the bank will deduct a 0.4% fee from the shopkeeper’s money.
  • Limits to Protect Shops: To keep things fair, the maximum fee is capped at ₹300, even for huge purchases.
  • Normal Users Are Safe: Sending money to friends or family stays 100% free. The government says this new fee will only affect a tiny fraction of daily transactions.

2. The Legal Drama in Court

  • The Court’s Challenge: Judges asked the government: If this fee isn’t an official “tax,” what gives you the legal right to take money from merchants and hand it to banks?
  • The Government’s Defense: The Centre argued it doesn’t keep a single rupee. The fee simply pays the banks and tech companies to maintain the massive computer servers that keep UPI running instantly.

Value Box: Key Polity & Economy Terms
Merchant Discount Rate (MDR) The small fee banks charge a shopkeeper for processing a digital payment. It covers the technical costs of running the network.
Article 265 A strict constitutional rule: “No tax shall be levied or collected except by authority of law.” Courts use this to check if the government is taking money illegally.
P2P vs P2M P2P (Person-to-Person) means sending money to individuals (always free). P2M (Person-to-Merchant) means paying a registered business, which now has fees for big amounts.

Practice MCQ

Q. Consider the following statements regarding digital payments in India:

  1. Under the recent guidelines, Person-to-Person (P2P) UPI transactions above ₹2,000 will attract a mandatory Merchant Discount Rate (MDR) charge.
  2. Article 265 of the Indian Constitution mandates that no tax can be levied or collected without the authority of a law passed by the legislature.

Which of the statements given above is/are correct?

(a) 1 only     (b) 2 only     (c) Both 1 and 2     (d) Neither 1 nor 2

Answer: (b) 2 only
Hint: Statement 1 is incorrect because the new MDR charges apply *only* to Person-to-Merchant (P2M) transactions above ₹2,000. Person-to-Person (P2P) transfers remain completely free. Statement 2 is correct and forms the basis of the current Supreme Court debate.
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