The policy, Delay Repay 15, will be launched first on Southern trains, which have suffered months of disruption over disputes about the role of conductors.
It will then feature on other Govia Thameslink Railway (GTR) services in the coming months before being rolled out across the country.
Existing compensation rules mean passengers can only claim pay outs when services are delayed by at least 30 minutes, but one railway regulator estimates just one in five people actually do so.
Only three in four GTR trains arrived on time between August 21 and September 17 this year with almost one in 10 cancelled or arriving more than 30 minutes late, Network Rail figures show.
A DfT spokeswoman could not give a start date for the scheme but said it would apply to Southern services “soon”.
Transport Secretary Chris Grayling said: “We recognise that, above all else, passengers want a reliable train service, but when things do go wrong it is vital that they are compensated fairly.
“Delay Repay 15 is a major improvement for passengers and we are working with train companies to make it as easy as possible for passengers to claim their rightful compensation.
“Together with the Consumer Rights Act, this policy shows we are putting passengers first and making sure they receive due compensation for poor service.”
Under the new Delay Repay 15 scheme, the compensation thresholds will be:
• 25% of the single fare for delays of 15 to 29 minutes
• 50% of the single fare for delays of 30 to 59 minutes
• 100% of the single fare for delays of 60 minutes to 119 minutes
• 100% of the total ticket cost (including if it is a return) for delays of two hours or more
John Larkinson, director of railway markets and economics at the Office of Rail and Road (ORR) said: “Our previous research shows around 80% currently don’t claim.
“Train operators need to build on today’s announcement by continuing to raise awareness of passengers’ compensation rights and to make sure it is as easy as possible to claim.”
Following its introduction on GTR, Delay Repay 15 will be launched across the network, starting with the new South Western, West Midlands and South Eastern franchises.
Stephen Joseph from Campaign for Better Transport said: “Southern’s long-suffering passengers deserve more than this, including a freeze or even reductions on fares to recognise the horrendous service they’ve been getting.
“Poor performance on the railways is not just limited to delays and we welcome the fact that the new Consumer Rights Act will cover the quality of rail journeys as well.”
GTR runs four services: Southern, Thameslink, Great Northern and Gatwick Express.
All future DfT rail franchises will include a requirement to introduce this policy.
Officials said they would explore opportunities to roll it out for all DfT franchises during this Parliament.
Charles Horton, Govia Thameslink Railway CEO, said: “We warmly welcome this announcement.
“When passengers are delayed, they deserve compensation and we strongly advise all our passengers to make a claim.
“This announcement will be good news for those with shorter journeys who think it is unfair they receive nothing for delays under 30 minutes.
“Now a decision has been made, we will work hard to implement this as quickly as possible.”
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Rail union leaders attacked the announcement as a “gimmick” to divert attention from the chaos on Southern Railway.
Transport Salaried Staffs Association general secretary Manuel Cortes said: “Grayling is completely desperate to remove the spotlight away from Southern’s ever deepening fiasco. Frankly, the public will see through today’s announcement.
“Passengers are sick to their back teeth of paying the highest fares in Europe whilst the state owned railways of other EU countries are creaming huge profits from running shabby train services over here.”
Mick Cash, leader of the Rail, Maritime and Transport union said: “This botched and complicated scheme will come as no comfort to the millions of passengers whose daily journeys are wrecked through the profiteering and under-investment on Britain’s rammed out, privatised railways.
“This scheme will not dent the fat cat profits of the private rail operators who still see the British people as nothing other than self-loading freight there to be fleeced at every opportunity.”