Social ,28 Mar 2025

Empowering Small Merchants: Government's ₹1,500 Crore Incentive for Low-Value BHIM

​The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the 'Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (P2M)' for the financial year 2024-25, allocating ₹1,500 crore to encourage digital payments among small merchants. ​

 

Key Features of the Scheme:

Eligibility: The scheme focuses on UPI transactions up to ₹2,000, specifically targeting small merchants to promote low-value digital payments. ​

Incentive Rate: A 0.15% incentive per transaction value will be provided for eligible transactions. For instance, a ₹1,000 transaction would result in a ₹1.50 incentive to the acquiring bank. ​

Disbursement Process: Each quarter, 80% of the approved claim amount by acquiring banks will be disbursed unconditionally. The remaining 20% is contingent upon:​

Maintaining a technical decline rate below 0.75%.​

Achieving system uptime greater than 99.5%.

 

Benefits of the Scheme:

For Consumers: Ensures convenient, secure, and swift transactions without additional charges, enhancing the overall payment experience.​

For Small Merchants: Encourages the adoption of UPI payments by eliminating extra costs, leading to formalized transactions and potential access to credit through established digital footprints.​

For the Economy: Supports the government's vision of a less-cash economy by promoting digital transactions, thereby enhancing transparency and efficiency in the financial ecosystem.​

 

Objectives of the Scheme:

Promote the indigenous BHIM-UPI platform with a target of achieving 20,000 crore total transaction volume in FY 2024-25.​

Support payment system participants in building robust and secure digital payments infrastructure.​

Expand UPI penetration in tier 3 to 6 cities, especially in rural and remote areas, by promoting innovative products like feature phone-based (UPI 123PAY) and offline (UPI Lite/UPI LiteX) payment solutions.​

Maintain high system uptime and minimize technical declines to ensure round-the-clock availability of payment services.​

 

Background:

Since January 2020, to promote digital transactions, the Merchant Discount Rate (MDR) was made zero for RuPay Debit Cards and BHIM-UPI transactions through amendments in relevant sections of the Payments and Settlement Systems Act, 2007, and the Income-tax Act, 1961. To support the payment ecosystem participants, incentive schemes have been implemented over the past three financial years, with the government disbursing ₹1,389 crore in FY 2021-22, ₹2,210 crore in FY 2022-23, and ₹3,631 crore in FY 2023-24. 

 

This initiative underscores the government's commitment to fostering a digital economy by incentivizing low-value digital transactions, thereby promoting financial inclusion and a less-cash society.