Centre approves ₹1,500 crore incentive for UPI transactions: What is it? Who will benefit? All you need to know

The Union Cabinet on Wednesday approved the extension of a ₹1,500 crore incentive for the promotion of small-value BHIM-UPI (P2M) transactions. The new move, aimed to benefit common man and small merchants, will be applicable for transactions below ₹2,000.

“The Union Cabinet chaired by the Prime Minister Shri Narendra Modi today approved the ‘Incentive Scheme for promotion of low-value BHIM-UPI transactions Person to Merchant (P2M)’ for the financial year 2024-25,” the government said in a press release.

Here is everything you need to know about the extension of the ₹1,500 crore incentive to promote UPI transactions:

What is the new UPI incentive approved by the government?

Under the new incentive, the Centre will promote low-value BHIM-UPI transactions (P2M) with an estimated outlay of ₹1,500 crore.

The ‘Incentive Scheme for promotion of low-value BHIM-UPI transactions Person to Merchant (P2M)’ for the financial year 2024-25 was announced by Information and Broadcasting Minister Ashwini Vaishnaw.

How will it work?

According to a press release by the government, the scheme will only cover UPI transactions of up to ₹2,000 for small merchants.

The government will provide an incentive at the rate of 0.15 per cent per transaction to small merchants.

For all the quarters of the scheme, 80 per cent of the admitted claim amount by the acquiring banks will be disbursed without any conditions.

The reimbursement of the remaining 20 per cent of the admitted claim amount for each quarter will be contingent upon the fulfilment of certain other conditions.

What are the benefits of the UPI incentive?

The incentive will promote convenient, secure, faster cash flow, and enhanced access to credit through digital footprints.

It will enable the common man to avail seamless UPI services without any cost. It will also ensure that small merchants can avail UPI services at no additional cost.

“As small merchants are price-sensitive, incentives would encourage them to accept UPI payment,” the government said.

The move will also benefit the government’s agenda of promoting a digital payment ecosystem and formalise the economy.

“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.

Why did the government approve this?

The government also stands to benefit from the move, which may be seen as a major trigger to approve the ₹1,500 crore UPI incentive. It will promote a balance of both the growth of UPI transactions and the minimum financial burden on the government exchequer, it said.

It will also help the Centre to achieve its target of 20,000 crore total UPI transaction volume in FY 2024-25, through the promotion of the BHIM-UPI platform.

It will also help support the payment system participants in building a robust and secure digital payments infrastructure.

The incentive will ensure penetration of UPI in tier 3 to 6 cities, especially in rural and remote areas.

During the last financial year, incentive payouts by the government for BHIM-UPI were ₹3,268 crore.