The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved an incentive scheme to promote small-value BHIM-UPI transactions between individuals and merchants (P2M) for the financial year 2024-25. With an estimated allocation of ₹1,500 crore, the scheme aims to encourage digital payments, particularly among small merchants, by offering financial incentives and ensuring smooth transaction experiences. It will be implemented from April 1, 2024, to March 31, 2025.
Under this scheme, UPI transactions up to ₹2,000 for small merchants are covered and will be eligible for an incentive of 0.15% per transaction. However, large merchants will not receive any incentives. To ensure timely disbursement, acquiring banks will receive 80% of their claim amount without conditions. The remaining 20% will be released based on two performance metrics—10% will be provided if the bank’s technical decline rate is below 0.75%, while the other 10% will be disbursed if the bank maintains a system uptime of more than 99.5%.
This initiative is expected to offer multiple benefits, including ensuring secure and fast digital payments while improving cash flow for small merchants. It allows businesses to accept UPI payments at no extra cost, making digital transactions more accessible.
Additionally, it provides the public with convenient and free payment options. By promoting digital transactions, the scheme also supports the government’s vision of a less-cash economy, formalizing and accounting for transactions in digital form. Another key aspect of the initiative is that it encourages banks to maintain high system uptime and low technical failures, ensuring uninterrupted payment services for users.
The primary objective of the scheme is to boost the adoption of BHIM-UPI and achieve a total transaction volume of ₹20,000 crore in the financial year 2024-25. It also aims to strengthen digital payment infrastructure across the country while expanding UPI adoption in rural and remote areas, including Tier 3 to Tier 6 cities. This will be achieved through innovative solutions such as feature phone-based UPI 123PAY and offline payment methods like UPI Lite and UPI LiteX. Additionally, the initiative ensures a stable and efficient digital payment system by minimizing technical issues and maximizing reliability.
Encouraging digital payments has been a key part of the government’s financial inclusion strategy. In January 2020, to support digital transactions, the government removed the Merchant Discount Rate (MDR) on RuPay debit cards and BHIM-UPI transactions. MDR, a fee previously charged on merchants for accepting digital payments, was applicable at rates of up to 0.90% for debit cards and 0.30% for UPI transactions. Over the past three years, the government has invested significant resources in incentivizing RuPay and UPI transactions, ensuring their widespread adoption.
