CBDT has issued Circular No. 12/2020 dated 20.05.2020 to clarify that the provisions of section 269SU of the Income-tax Act, 1961 shall not be applicable to certain B2B transactions under the specified cases. With this clarification, exemptions from compliance of the provisions of section 269SU have been given who do not deal with retail customers and thus bring huge relief from costs as well as compliance to B2B businesses.
The Finance (No. 2) Act, 2019 has introduced a new section in the Income Tax Act, 1961 namely, section 269SU to provide that every person having a business turnover of more than Rs 50 Crore shall mandatorily provide facilities for accepting payments through prescribed electronic modes.
Section 269SU came into effect from 1st November 2019.
Section 269SU requires that such a business entity shall provide the facility to its customers or debtors to pay through prescribed electronic modes. It is a mandatory provision for an eligible entity to provide the facility for digital payments. The payer may or may not pay through the prescribed modes.
If the business entity is already providing any existing facility for electronic mode of payment then such a business entity shall provide the new facilities which will be prescribed under this section.
The primary objective of the provision is to encourage the digital economy and move towards a less-cash economy. After the introduction of the provision, a business entity is duty-bound and under a legal obligation to provide the electronic mode of payments facility to its customers.
To ensure compliance with the provisions of section 269SU, the law has provided a penalty for failing to comply with the provisions of section 269SU.
For this purpose, section 271DB is introduced by the Finance (No. 2) Act, 2019. The section provides for a penalty of Rs. 5,000 for every day during which such failure continues.
To promote the digital payments and to make it cost-effective, a consequential amendment is also made in the Payment and Settlement Systems Act, 2007.
A new section 10A is added in the Payment and Settlement Systems Act, 2007 to provide for waiving the charges on the digital payments for both the payer and the receiver.
The applicability of the provisions of section 269SU to those business entities who do not receive payments from retail customers was always in question. This is because it is not practical to receive payments from customers by B2B enterprises since they are distant and large customers who prefer to make payment by banking channels like NEFT/RTGS rather than by debit cards or BHIM/UPI which are primarily meant for payment modes by individual and retail customers. Further, there are restrictions on amount and number of transactions on cards and UPI and other prescribed modes of payments.
Since section 269SU did not provide any exemption for any entities rather was made applicable to all, it was unnecessarily increasing the cost of compliances for B2B entities. Those entities had to compulsorily comply with the provisions of section 269SU without any purposeful use since violation of section 269SU attracts a penalty of Rs 5,000 for each day of default. Many businesses were were forced to install such payment facilities, even though such facilities were never supposed to be used for such businesses, considering the nature of business or customer base.
The CBDT has notified the prescribed modes of payments under section 269SU by a Notification No. 105/2019 dated 30.12.2019 and amended the Income Tax Rules, 1962.
A new Rule 119AA is inserted in the Income Tax Rules, 1962 to mandatorily provide for the following electronic modes of payments in addition to the facility for other electronic modes of payment, if any, being provided, namely-
(i) Debit Card powered by RuPay;
(ii) Unified Payments Interface (UPI) (BHIM-UPI); and
(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)
The new Rule 119AA came into effect from 01.01.2020.
Further, in order to provide sufficient time to the specified persons to install and operationalize the facility for accepting payment through notified prescribed electronic modes, the CBDT had set 31st January 2020 as the last date within which such facilities shall be installed and operationalized by such persons by a Circular No. 32/2019 dated 30.12.2019.
If the specified person fails to install and operationalize the facility for accepting payment through prescribed electronic modes within January 31, 2020, then penalty u/s 271DB would be levied from February 1, 2020, for such failure.
On 20th January 2020, the income-tax department sent emails to eligible entities whose turnover was more than Rs. 50 crore on the basis of the return of income furnished by the taxpayer for the Assessment Year 2019-20.
After completing all the formalities and operationalize the provisions, finally CBDT on 20th May, 2020 has issued the clarification that exempts B2B entities from the applicability of the provisions of section 269SU and clarified that section 269SU shall apply and the prescribed mode of payments shall be operational only where the payments are being received from retail customers.
With the Circular No. 12/2020 dated 20.05.2020, it is clarified that provisions of section 269SU of the Act shall not be applicable to a specified person having only B2B transactions (i.e. no transaction with retail customer/consumer) if at least 95% of aggregate of all amounts received during the previous year, including amount received for sales, turnover or gross receipts, are by any mode other than cash.
It has also stated that this clarification is based on the representations that have been received by it, stating that the requirement of the mandatory facility for payments through the prescribed electronic modes is generally applicable in B2C (Business to Consumer) businesses, which directly deal with retail customers. Moreover, since the prescribed electronic modes have a maximum payment limit per transaction or per day they are not so relevant to B2B (Business to Business) businesses, which generally receive large payments through other electronic modes of payment such as NEFT or RTGS.
Mandating such businesses to provide the facility for accepting payments through prescribed electronic modes would cause administrative inconvenience and impose additional costs, the CBDT clarification added.
From the above clarification, it must be borne in mind that the exemption from applicability of provisions of section 269SU is not a blanket one but conditional.
Exception from the applicability of installation of prescribed modes of payments from section 269SU is available in the following cases-
1. The exception is applicable only to a specified person having only B2B transactions.
2. At least 95% of the aggregate of all amounts received during the previous year, including the amount received for sales, turnover or gross receipts, are by other than cash.
If both the conditions are satisfied then only the B2B businesses are exempt from the applicability of section 269SU.
B2B are those enterprises which have no transaction with retail customers/consumers.
The receipt of the 95 per cent threshold is not limited to receipt from sales or turnover only. It covers all the receipts of the entity like receipt of loans, credits, capital contribution in the firm, etc. However, the restriction is limited to receipts in cash only and does not cover payments in cash.
Further, in case, a B2B entity also carries on retail business, then it has to implement and install the prescribed mode of payments. However, this condition does not mean that there is a ban on cash transactions completely.
Recently, CBDT has notified other electronic modes of payments under the Income Tax Act, 1961 vide Notification No. 08/2020 dated 29.01.2020 and inserted new Rule 6ABBA to prescribe for other electronic modes of payments as prescribed for certain sections of the Act as per amendments introduced by the Finance Act, 2019.
Read the full text of the Circular No. 12/2020 dated 20.05.2020.
Circular No. 12/2020
F.No.370142/35/2019-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
****
Dated: 20th May, 2020
Subject: Clarifications in respect of prescribed electronic modes under section 269SU of the income-tax Act, 1961 — reg.
In furtherance to the declared policy objective of the Government to encourage digital transactions and move towards a less-cash economy, a new provision namely Section 269SU was inserted in the Income-tax Act, 1961 (“the Act”), vide the Finance (No. 2) Act 2019. This section requires every person carrying on business and having sales/turnover/gross receipts from business of more than Rs 50 Crores (“specified person”) in the immediately preceding previous year to mandatorily provide facilities for accepting payments through prescribed electronic modes. Subsequently vide notification no. 105/2019 dated 30.12.2019 (i) Debit Card powered by RuPay; (ii) Unified Payments Interface (UPI) (BI-IIM-UPI); and (iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code) were notified as prescribed electronic modes.
2. Representations have been received stating that the above requirement of mandatory facility for payments through the prescribed electronic modes is generally applicable in B2C (Business to Consumer) businesses, which directly deal with retail Moreover, since the prescribed electronic modes have a maximum payment limit per transaction or per day they are not so relevant to B2B (Business to Business) businesses, which generally receive large payments through other electronic modes of payment such as NETT or RTGS. Mandating such businesses to provide the facility for accepting payments through prescribed electronic modes would cause administrative inconvenience and impose additional costs.
3. In view of the above, it is hereby clarified that the provisions of section 269SU of the Act shall not he applicable to a specified person having only B2B transactions (i.e. no transaction with retail customer/consumer) if at least 95% of aggregate of all amounts received during the previous year, including amount received for sales, turnover or gross receipts, are by other than cash.
(Ankur Goyal)
Under Secretary to the Govt. of India
Download Copy of Circular No. 12/2020 dated 20.05.2020 in pdf format.
Further Readings on Section 269SU:
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