No Cost, More Digital: Govt Renews UPI Incentive Scheme

The Union Cabinet on Wednesday approved the extension of a ₹1,500 crore incentive scheme to promote small-value digital transactions, aiming to reduce the financial burden on stakeholders within the UPI ecosystem.

The scheme, which applies to UPI transactions up to ₹2,000 for small merchants, will be in effect from April 1, 2024, to March 31, 2025, on a post-facto basis. Union Minister Ashwini Vaishnaw confirmed that the scheme will continue for the following year as well. Under this initiative, small merchants accepting UPI payments will receive an incentive at a rate of 0.15% per transaction.

According to official data, the total number of digital payment transactions in India has surged from 8,839 crore in FY 2021-22 to 18,737 crore in FY 2023-24, marking a CAGR of 46%. The UPI platform has been the primary driver, with transactions increasing from 4,597 crore in FY 2021-22 to 13,116 crore in FY 2023-24.

Boosting Digital Payments for the Common Man

The extension of this incentive scheme is expected to further accelerate digital transactions, benefiting both consumers and small merchants. Customers can continue making seamless and charge-free digital payments for everyday purchases, ranging from groceries to tea stalls.

For small merchants, the 0.15% incentive per transaction will help them adopt digital payments without concerns over transaction fees.

Key Features of the Scheme

• Zero MDR on UPI transactions: No Merchant Discount Rate (MDR) will be charged, making digital payments cost-effective.

• Support for small merchants: Only small merchants will receive the 0.15% incentive per transaction, ensuring direct benefits to local businesses.

• Bank incentives for service quality: 80% of the admitted claim amount for incentives will be disbursed to banks quarterly, while the remaining 20% will be conditional on service standards. Banks maintaining a technical decline rate below 0.75% will receive a 10% bonus, and those ensuring over 99.5% system uptime will get another 10% bonus.

The government’s decision is expected to reinforce India’s digital payments ecosystem, making transactions more convenient and accessible for small merchants and consumers alike.

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