In a landmark effort to expand digital financial inclusion, the Indian government has sanctioned a ₹1,500 crore incentive package for the fiscal year 2024-25. This initiative is tailored to boost low-value BHIM-UPI transactions, particularly benefiting small-scale merchants and reinforcing India’s leadership in real-time digital payments globally.
No MDR and Incentivized Digital Deals for Micro Retailers
Under the new scheme, micro and small merchants will not bear the burden of Merchant Discount Rate (MDR) charges. Additionally, they will earn a 0.15% incentive on digital transactions capped at ₹2,000. This move is expected to attract a broader base of local vendors into the digital economy by making digital payments both economical and rewarding for small businesses.
Union Cabinet’s Nod Signals National Commitment to UPI Expansion
The policy received formal approval from the Union Cabinet, chaired by Prime Minister Narendra Modi, as part of the Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (Person to Merchant – P2M). This scheme is closely aligned with India’s overarching vision to empower grassroots entrepreneurs and integrate them into the mainstream digital payment infrastructure.
MDR Waiver Reinforces Inclusive Payment Ecosystem
The government has steadily promoted cost-free digital transactions by waiving MDR charges for both RuPay Debit Cards and BHIM-UPI since January 2020. These reforms were solidified through legislative amendments to the Payments and Settlement Systems Act, 2007, and the Income-tax Act, 1961, creating a foundation for broad-based financial access.
Wider Digital Benefits for the Entire UPI Network
The incentive plan is structured to support the broader UPI ecosystem. It extends benefits not just to merchants but also to issuing banks, acquiring institutions, payment service providers, and app developers. This approach aims to foster innovation, enhance user experience, and expand the digital payment landscape through shared rewards.
Extending UPI Penetration to Remote and Rural Markets
Set to run from April 1, 2024, to March 31, 2025, the scheme exclusively promotes payments of up to ₹2,000 through the UPI channel. Its focus is to onboard rural and semi-urban merchants, leveraging tools like UPI 123PAY for feature phone users and UPI Lite and LiteX for offline transactions, ensuring comprehensive digital reach even in remote regions.
Explosive UPI Growth Inspires New Transaction Milestones
India’s UPI network has seen astronomical growth. From ₹21.3 lakh crore in transaction value during 2019-20, the platform soared to ₹213.8 lakh crore by January 2025. Of this, ₹59.3 lakh crore originated from Person-to-Merchant (P2M) transactions. With the new scheme, the government is targeting ₹20,000 crore specifically in low-value P2M payments during FY 2024-25.
Performance-Based Incentives Focused on Grassroots Merchants
Incentives will apply only to small merchants accepting payments under ₹2,000. These will receive 0.15% rewards, while transactions above ₹2,000 and those by larger merchants will remain zero-MDR but ineligible for incentives. This tiered model ensures that the scheme directly supports small vendors while maintaining uniform cost-free digital access for all.
Quarterly Disbursements Linked to UPI Infrastructure Efficiency
Reimbursements will be rolled out quarterly. Eighty percent of eligible claims will be disbursed to acquiring banks unconditionally, while the remaining 20% will depend on performance metrics. Half of this will be tied to maintaining a system uptime above 99.5%, and the other half to keeping the technical failure rate below 0.75%, thereby ensuring superior service reliability.
Advancing a Digitally Empowered Merchant Economy
This targeted incentive scheme offers multiple advantages for small merchants, including lower operating costs, quicker payments, and potential for integration with digital lending systems. As digital infrastructure strengthens and UPI continues to scale, India edges closer to its goal of building a transparent, efficient, and inclusive economy led by technology.