What is Section 269SU of Income Tax Act ?
To promoting cashless economy and give boost to digital india, the government has introduced section 269SU in the Income-tax act. Section 269SU introduced in The Finance Act, 2019 and applicable from 1st November-2019. It was done to promote low-cost digital modes of payments.
This provision apply to every person having business turnover/gross receipt more than 50 crore during the immediately preceding previous year. As per this provisions of section 269SU of Income tax act read with Rule 119AA, Businesses having turnover of more than Rs 50 Crore in previous financial year has to mandatorily provide facility of accepting payments through prescribed mode apart from modes which is already in operation. Rule 119AA has provided the prescribed modes of payments, which was notified by CBDT.
I am analyzing these provisions and relevant rules in detail which are discussed below-
What is Rule 119AA of Income Tax Rules
Rule 119AA has provided the prescribed modes of payments facilities need to be provided by supplier. Rule 119AA of Income tax Rule become effective from 1st January-2020 and As per Rule 119AA, These prescribed mode of payments are:
- Rupay Debit Card
- Unified Payments Interface (UPI) (BHIM-UPI)
- UPI QR Code (BHIM-UPI QR Code)
Deadline to Install Prescribed Payment facilities
In the Circular No. 32/2019 it was clarified that deadlines to implement such facilities to accept electronic payments is 31th January-2020
Penalty for Non Compliance with Section 269SU
The penalty for non compliance is provided under section 271DB of the Act. As per section 271DB, businesses are liable to pay penalty of INR 5,000 per day from 1st Feb-2020 onwards in case of failure to comply with Section 269SU ie. Failure in providing facility of electronic mode payment.
CBDT issued Circular no 32/2019, which clarifies that no penalty shall be levied if person installs facilities of electronic payments till 31st January, 2020.
Businesses who failed to comply with the provisions of section 269SU of income tax act will be served a show-cause notice as a chance to prove why they should not be liable for penalty under section 271DB for noncompliance. If the joint commissioner find that the reasons given by the person in default for the non-adherence are considered as valid and adequate then the joint commissioner may choose not to penalize the defaulter.
Issues in Implementation of Section 269SU
The requirement of the mandatory facility for payments through the prescribed electronic mode under Section 269SU is generally applicable in B2C business, ie. The businesses who directly deals with retail customers. Though it was introduced with good intentions and motive, but it created difficulties to business having B2B and large transactions where cash transactions are not involved. Such businesses also required to provide all 3 modes of prescribed payments in order to comply with the provision, even though none of the parties would ever make payment by any of the mode as prescribed.
Moreover, since the prescribed electronic modes such as debit cards, UPI and UPI QR codes have a maximum payment limit per transaction/per day, they are not so relevant to the businesses not dealing with retail customers, which generally receive large payments through other electronic modes of payment such as NEFT or RTGS.
Relaxations/Exemptions from Section 269SU
Based on various representations received, CBDT further clarified by way of circular No 12/2020:- 20-May, 2020. It clarifies that
Provisions of section 269SU shall not apply if:
Specified person have only B2B transaction ie No transaction with retail customer if atleast 95% of the aggregate of all receipt during the immediate preceding year are any mode other than cash.
In short we can conclude that 2 conditions for exemption with Section 269SU are:
- Specified person have only B2B transaction and
- At least 95% of aggregate of all receipts during previous year is from any mode other than cash
Even after this relaxation, there are many issues unresolved like- This Circular No 12/2020 provides two conditions, wherein businesses with retail transactions are kept out of this relaxation even though all the payments are accepted in mode other than cash. And even for Businesses having B2B transactions it provides exemption, but again there is additional condition of 95% of receipts from mode other than cash in preceding year imposed.