The Union Cabinet, led by Prime Minister Shri Narendra Modi, has approved a ₹1,500 crore Incentive Scheme for Promoting Low-Value BHIM-UPI Person-to-Merchant (P2M) Transactions for the financial year 2024-25. This initiative, running from April 1, 2024, to March 31, 2025, aims to encourage digital payments among small merchants and drive financial inclusion in rural and semi-urban areas.
Key Highlights of the Incentive Scheme:
- Applicable Transactions: The scheme covers UPI payments up to ₹2,000 made to small merchants, with an incentive of 0.15% per transaction.
- Zero MDR Policy: No Merchant Discount Rate (MDR) will be applied on transactions up to ₹2,000 for both small and large merchants. However, only small merchants will receive the incentive.
- Reimbursement to Acquiring Banks:
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- 80% of the admitted claims by acquiring banks will be disbursed without conditions.
- The remaining 20% will be released based on performance metrics:
- 10% will be provided if technical decline is below 0.75%.
- 10% will be given if system uptime is above 99.5%.
Benefits of the Scheme:
- Encouraging Digital Adoption: The scheme facilitates seamless and cost-free digital transactions for small merchants, making digital payments more accessible.
- Improved Financial Inclusion: By targeting Tier 3 to Tier 6 cities and rural areas, the initiative promotes UPI-based payments via feature phones (UPI 123PAY) and offline modes (UPI Lite/UPI LiteX).
- Secure & Efficient Transactions: The 20% incentive tie-up with system uptime and transaction success rates will push banks to ensure uninterrupted digital payment services.
- Supports a Less-Cash Economy: The initiative aligns with the government’s goal of formalizing financial transactions and reducing cash dependency.
The Indian government has consistently supported digital payments through zero MDR policies and direct incentives. Since January 2020, MDR has waived RuPay Debit Cards and BHIM-UPI transactions to promote their adoption.
The total government expenditure on digital payment incentives in recent years has been:
| Financial Year | Total Payout (₹ Cr) | RuPay Debit Card (₹ Cr) | BHIM-UPI (₹ Cr) |
| FY 2021-22 | 1,389 | 432 | 957 |
| FY 2022-23 | 2,210 | 408 | 1,802 |
| FY 2023-24 | 3,631 | 363 | 3,268 |
The incentives are distributed to acquiring banks (merchant’s banks) and further shared with issuer banks, payment service providers, and third-party app providers (TPAPs) involved in UPI transactions.
With a target of ₹20,000 crore in UPI transaction volume for FY 2024-25, this incentive scheme is a strategic step towards expanding digital payments, enhancing financial accessibility, and driving India’s cashless economy forward.
