Union Cabinet approves Rs 1,500 crore to incentivise low-value UPI transactions

New Delhi: The Union Cabinet, on Wednesday, approved an incentive scheme with a financial outlay of Rs 1,500 crore to promote low-value transactions through unified payments interface (UPI).

The incentive under the scheme will be provided only to person-to-merchant transactions. Incentives of 0.15% per transaction value will be provided for transactions up to Rs 2,000 pertaining to the category of small merchants. Rs 1500 crore outlay has been approved for the financial year 2024-25.

Addressing a media briefing, Union Minister Ashwini Vaishnaw said the objective of the scheme is to support small merchants and encourage digital payments by reducing costs for stakeholders.

“The incentive scheme on promoting low value UPI transactions, which has been approved by the Cabinet today will encourage digital payments and further ‘Ease of Living’,” Prime Minister Narendra Modi said in a post on X.

Vaishnaw informed that the scheme will continue in 2025-26 as well. The allocation of Rs 1,500 crore is for the transactions done in the current financial year.

In order to promote digital payments the government also provides incentives in the form of zero MDR (Merchant Discount Rate).

As per the Reserve Bank of India (RBI) guidelines, MDR up to 0.90% of transaction value is applicable across all card networks (for Debit cards). As per the National Payments Corporation of India (NPCI), MDR up to 0.30% of transaction value is applicable for UPI person-to-merchant (P2M) transactions.

Since January 2020, to promote digital transactions, MDR has been made zero for RuPay Debit Cards and BHIM-UPI transactions through amendments in the Payments and Settlement Systems Act, 2007 and the Income-tax Act, 1961.

In order to support the payment ecosystem participants in effective delivery of services, “Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)” has been implemented with due approval by the Cabinet, as per an official statement released after the cabinet meeting.

For the financial year 2023-24 the central government provided an incentive of Rs 3,631 crore under these schemes. The outlay under the scheme stood at Rs 2210 crore in 2022-23 and Rs 1,389 crore in 2021-22.

The incentive is paid by the government to the acquiring bank (merchant’s bank) and thereafter shared among other stakeholders: Issuer Bank (customer’s Bank), Payment Service Provider Bank (facilitates onboarding of customers on UPI app/ API integrations) and app providers.