UPI Cashback Scheme: 2% Cashback to Boost Digital India Payments
To further accelerate the pace of Digital India, the Central Government is working on an impactful new scheme that could soon bring great news for millions of digital payment users across the country. Reports suggest that the government is considering a plan to offer a 2 percent cashback on payments made through the Unified Payments Interface (UPI). This initiative is not only set to directly benefit customers but also aims to take digital transactions in India to new heights. Let’s dive into the details of this scheme, how it will work, and the transformative impact it could have on the nation, in clear and simple English.
What is the New Cashback Scheme?
In simple terms, the government wants to encourage people to move away from cash transactions and embrace UPI for payments by offering a 2% cashback incentive. For example, if you buy something worth ₹100 at a shop and pay using UPI, you could get ₹2 back as cashback. This means you effectively pay only ₹98 for the purchase. The ₹2 cashback could either be credited back to your bank account or given as an instant discount at the time of purchase.
The primary goal of this scheme is to nudge people towards digital payments and reduce reliance on cash. This will benefit not just customers but also merchants and the government in multiple ways. The scheme is still in the planning stages and may initially be rolled out as a pilot project in select areas or stores. If successful, it could be expanded nationwide.
How Will the Cashback Work?
The big question is: how will this cashback reach you? According to reports, the government is designing the scheme to make it as seamless as possible. The cashback will be automatically credited to the bank account linked to your UPI ID after you make a payment. You won’t need to fill out any forms or register separately. As soon as you complete a UPI transaction—say, by scanning a QR code and paying—the 2% cashback will be transferred to your account.
Sources suggest that in the initial phase, the cashback might be limited to specific types of transactions or certain merchants, such as grocery stores, medical shops, or fuel stations. Over time, the scheme could be extended to cover all UPI transactions, making it a game-changer for digital payments.
A Boost for Digital India
Prime Minister Narendra Modi’s Digital India mission has already transformed the way payments are made in the country. UPI has revolutionized digital transactions, with everyone from street vendors to large retailers adopting it. However, in many parts of India, cash remains the preferred mode of payment. The proposed 2% cashback scheme aims to change this by making digital payments more attractive.
When people see a tangible benefit—like getting money back on every transaction—they are more likely to switch to digital payments. This will not only increase transparency in transactions but also help curb issues like black money and tax evasion. Banking experts believe this scheme will boost both trust and enthusiasm for digital payment systems among the public.
UPI vs Credit Cards
Some might wonder: when credit and debit cards are already available, why is the government focusing so much on UPI? The answer lies in the economics of transactions.
When you pay with a credit card, the merchant has to pay a Merchant Discount Rate (MDR), typically 2-3% of the transaction amount. For example, if you buy something worth ₹100 with a credit card, the merchant receives only ₹97-98 after the MDR is deducted. This charge is often borne by the merchant, but in some cases, it’s passed on to customers through higher prices, making goods more expensive.
In contrast, UPI transactions do not incur any MDR. The merchant receives the full payment amount, and the customer doesn’t have to pay any extra fees. The government now wants to pass this cost-saving benefit directly to customers through the 2% cashback scheme, making UPI an even more attractive option compared to cards.
A Boon for Rural India
In rural and semi-urban areas, cash transactions still dominate due to limited awareness of digital payments, lack of internet access, or the absence of clear incentives to go digital. The cashback scheme could change this dynamic.
When people in villages and small towns realize that they can save money on every UPI transaction, they will be more inclined to adopt digital payments. This will not only promote digital literacy but also expand access to banking services in remote areas. The scheme could be a significant step toward inclusive development, bringing more people into the formal financial system.
Benefits for the Government
The cashback scheme isn’t just about benefiting customers and merchants—it’s a win for the government too. As digital payments increase, tax collection becomes more transparent. This will help reduce GST evasion and boost government revenue, which can be used for development projects.
Additionally, cash transactions come with significant costs, such as printing currency, distributing it, and maintaining ATMs. These expenses run into billions of rupees annually. By promoting digital payments, the government can cut these costs, freeing up resources for other priorities.
UPI’s Record-Breaking Popularity
UPI has already transformed India’s digital payment landscape. In 2024 alone, over 1,100 crore (11 billion) UPI transactions were recorded, with a total value running into lakhs of crores of rupees. These staggering numbers highlight UPI’s widespread acceptance.
From roadside tea stalls to high-end shopping malls, QR codes have become ubiquitous. Whether it’s a vegetable vendor, a pan shop, or an auto-rickshaw driver, UPI has made digital payments accessible to all. The cashback scheme is expected to further amplify this trend, making UPI even more popular.
Enhanced Security with Digital Payments
One of the biggest risks with cash is the possibility of theft or loss. Digital payments, particularly through UPI, significantly reduce this risk. UPI transactions require two-factor authentication (2FA), meaning a payment can only be completed with your explicit approval, usually via a PIN or biometric verification.
Moreover, the government and banks are continuously strengthening cybersecurity measures to protect users from fraud. This makes UPI a safer and more reliable option compared to handling cash.
Challenges to Address
While the scheme has immense potential, it also comes with some challenges. One key question is: who will fund the cashback? Will the government bear the cost through its budget, or will banks and payment companies be roped in to share the burden?
Another concern is the potential misuse of the scheme. For instance, some individuals might try to game the system by making multiple small transactions to accumulate cashback. To prevent such loopholes, the government will need to establish robust monitoring mechanisms and clear guidelines before rolling out the scheme.
