UPI incentive scheme: The scheme aims to promote low-value BHIM-UPI transactions which will be implemented at an estimated cost of Rs 1,500 crore. Only the UPI transactions up to Rs 2,000 for small merchants are covered under the scheme.
UPI incentive scheme: In a move aimed at empowering small merchants and easing digital payments for everyday consumers, the central government has cleared a Rs 1,500 crore incentive scheme to promote small-value BHIM-UPI transactions up to Rs 2,000. The initiative, titled ‘Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions Person to Merchant (P2M)’ for the financial year 2024-25, was approved by the Cabinet chaired by Prime Minister Narendra Modi. Notably, Unified Payments Interface (UPI) is an instant real-time payment system developed by NPCI to facilitate inter-bank transactions through mobile phones.
As per an official release, the scheme is expected to cover nearly 55% of total merchant transactions. Small merchants will benefit directly, with incentives provided at the rate of 0.15% of the transaction value for each eligible payment below Rs 2,000. The structure of the scheme ensures that acquiring banks receive 80% of the admitted claim amount every quarter without conditions. The remaining 20% will be reimbursed upon meeting certain predefined criteria. This framework is designed to encourage wider adoption of UPI among small businesses by making digital transactions cost-free for them.
(Image Source : PIB)Some key points of the UPI incentive scheme.
Objective of the scheme
The primary goal of the newly approved incentive scheme is to bolster the use of the homegrown BHIM-UPI digital payment platform across the country. With an ambitious target of achieving a cumulative UPI transaction value of Rs 20,000 crore by the end of the financial year 2024-25, the initiative underscores the government’s commitment to deepening the digital economy.
Since 2020, the Centre has taken significant steps to promote digital payments by waiving the Merchant Discount Rate (MDR) on transactions conducted through RuPay debit cards and the BHIM-UPI platform. These policy measures have been complemented by direct financial incentives—over Rs 7,000 crore disbursed to banks and payment service providers over the past three years—to accelerate the adoption of digital transactions.
The scheme also aims to support all participants in the payment ecosystem by helping them build a robust, safe, and inclusive digital payment infrastructure. A key focus of the initiative is expanding UPI’s footprint into tier 3 to tier 6 cities, especially in rural and remote regions. This expansion will be aided by innovative solutions such as UPI 123PAY for feature phones and offline payment tools like UPI Lite and UPI LiteX in order to ensure that digital payment access reaches the last mile.
Benefits of the scheme
The scheme brings some key benefits aimed at accelerating the adoption of digital payments while supporting small merchants and the general public. By offering convenient, secure, and cost-free payment options, the scheme enhances the overall digital transaction experience for users and ensures faster cash flow and improved credit access through a stronger digital footprint.
For consumers, the scheme guarantees seamless UPI-based payments without any additional charges. At the same time, small merchants can now use UPI services without bearing extra operational costs. The financial incentives provided are expected to encourage wider adoption among these businesses, many of whom are still dependent on cash transactions.
This initiative also aligns with the government’s broader vision of promoting a cashless economy by ensuring greater transparency through digitally recorded transactions. Operational efficiency is another key focus—banks are required to maintain high system uptime and minimize technical failures to qualify for the full 20% performance-linked incentive. This ensures that digital payment services remain consistently available to the public.
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