Govt Greenlights Incentive Scheme for Small Merchant UPI Transactions

New Delhi- The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the “Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (P2M)” for the financial year 2024-25, with an estimated outlay of ₹1,500 crore. The scheme will run from April 1, 2024, to March 31, 2025, aiming to boost digital payments, especially among small merchants.

Under the scheme, UPI transactions up to ₹2,000 made to small merchants will attract an incentive of 0.15% per transaction. Small merchants will benefit from zero Merchant Discount Rate (MDR) on transactions below ₹2,000, while large merchants will not receive any incentive. Transactions above ₹2,000 will remain exempt from MDR for both categories.

To ensure efficiency, 80% of the admitted claim amount by acquiring banks will be disbursed without conditions. The remaining 20% will be contingent on two factors — banks must maintain a technical decline rate of less than 0.75% and system uptime of over 99.5%. This provision aims to enhance service reliability and minimize transaction failures.

The scheme offers several benefits, including faster cash flow, improved access to credit through digital footprints, and a seamless payment experience for citizens without additional charges. It is expected to promote the government’s vision of a less-cash economy and drive UPI adoption in rural and remote areas, particularly through innovative solutions like UPI 123PAY and UPI Lite.

The government aims to achieve a total transaction volume of ₹20,000 crore through the BHIM-UPI platform in FY 2024-25, further supporting financial inclusion and digital infrastructure development. The scheme also balances the growth of UPI transactions with a minimal financial burden on the exchequer.

Since the introduction of zero MDR for RuPay debit cards and BHIM-UPI transactions in January 2020, the government has supported digital payment service providers through incentive payouts. In the last three financial years, the total payout for BHIM-UPI transactions increased from ₹957 crore in 2021-22 to ₹3,268 crore in 2023-24.