The Union cabinet’s decision approving the ‘Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (Person to Merchant – P2M)’ for the financial year 2024-25 supports the government’s goal of boosting digital payments, encouraging small merchants to adopt UPI, and promoting financial inclusion, an official press note said on Monday.

Promoting digital payments is an integral part of the government’s strategy for financial inclusion and providing wide-ranging payment options to the common man.

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The expenditure incurred by the digital payment industry for providing services to customers/merchants is recovered through the Merchant Discount Rate (MDR). The merchant discount rate (MDR) is a fee that merchants and other businesses must pay to a payment processing company on debit or credit card transactions. The MDR typically comes in the form of a percentage of the transaction amount.

As per RBI, MDR of up to 0.90% of the transaction value is applicable across all card networks for debit cards. As per NPCI, MDR of up to 0.30% is applicable for UPI P2M (Person to Merchant) transactions. Since January 2020, to promote digital transactions, MDR has been made zero for RuPay Debit Card and BHIM-UPI transactions through amendments in Section 10A of the Payments and Settlement Systems Act, 2007 and Section 269SU of the Income-tax Act, 1961.

To support payment ecosystem participants in effective service delivery, the government has implemented the “Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)”, with due Cabinet approval.
The incentive is paid by the Government to the Acquiring Bank (merchant’s bank) and is then shared among other stakeholders: Issuer Bank (customer’s bank), Payment Service Provider Bank (facilitates UPI onboarding/API integration), and App Providers (TPAPs).

The incentive scheme for promoting low-value BHIM-UPI transactions (P2M) will be implemented at an estimated outlay of Rs 1,500 crore, from 1 April 2024 to 31 March 2025. It exclusively covers UPI (Person to Merchant – P2M) transactions of up to ₹2,000, specifically targeting small merchants to encourage the adoption of digital payments at the grassroots level.

UPI transactions have significantly increased in recent years, with total transaction value rising from ₹21.3 lakh crore in FY2019-20 to ₹213.8 lakh crore till January 2025. Of this, Person to Merchant (P2M) transactions have grown steadily, reaching ₹59.3 lakh crore, reflecting increased digital payment adoption among merchants.

Under the approved scheme, incentives are designed based on the merchant category and transaction value.

For small merchants, UPI transactions up to ₹2,000 will attract zero Merchant Discount Rate (MDR) and will be eligible for an incentive of 0.15% of the transaction value. For transactions above ₹2,000, there will be zero MDR but no incentive. In the case of large merchants, all transactions—regardless of the amount—will have zero MDR and will not carry any incentive.