Section 269SU Acceptance of payment through electronic modes

Section 269SU has been introduced by the government under Income Tax Act with an intention to promote cashless economy and digital mode of accepting payment. Section 269SU prescribes for accepting payment through certain electronic modes as prescribed in addition to other electronic modes. This article is a detailed discussion on Section 269SU alongwith various practical issues faced by the assessees while dealing with this section.

1. Applicability of Section 269SU

Section 269SU is applicable to all Assessee whether they are Individual , HUF, Company, LLP or having any other status (irrespective of whether resident or not) if they are carrying business and , if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year. So current provisions of section 269SU read along with Rule 119AA, will also be applicable to the following categories of assessees-

a. an assessee engaged in B2C business model;

Note: Circular No. 12/2020 clarified that the 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 other than cash.

b. an assessee which is 100 percent export-oriented (i.e. no domestic sales, and therefore, all payments will always be received through normal banking channels); and

c. a foreign company carrying on the business through a Permanent Establishment (PE) in India.

2. What Turnover Means and do it include GST?

In the “Guidance Note on Terms used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as: “The aggregate amount for which sales are effected or services rendered by an enterprises. The term ‘gross turnover/sales’ and ‘net turnover/sales’ are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts”

In the statement issued by ICAI on the companies (Auditors’ Report) Order 2016 the word ‘turnover’ has been defined as under-

“The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises”

Unless the CBDT clarifies its stand on this matter, it would be appropriate to ignore the amount of GST while calculating the gross turnover or gross receipts.

Read- Inclusion of GST in Gross Turnover for Tax Audit Limit Calculation?

3. What is Electronic Mode of Payment or e-payment system

An e-payment system is a way of making transactions or paying for goods and services through an electronic medium, without the use of cheques or cash. It’s also called an electronic payment system or online payment system.

Most popular e-payment forms online are credit and debit cards. Besides them, there are also alternative payment methods, Mobile Payment, such as bank transfers, electronic wallets, smart cards etc.

4. What are prescribed Electronic Mode of Payment

As per section 269SU Business who falls under Section 269SU has to compulsorily provides option to their customers to pay through modes prescribed by CBDT and same will be in addition to other options of electronic payment provided Business.

CBDT has vide Notification No. 105/2019-Income Tax [G.S.R. 960(E)] – (30/12/2019) prescribed following additional Modes of payment for the purpose of section 269SU by inserting new Income Tax Rule 119AA-

(i) Debit Card powered by RuPay-

RuPay is a card scheme, conceived and launched by the National Payments Corporation of India (NPCI) on 26 March 2012. It was created to fulfil the Reserve Bank of India’s (RBI) vision to have a domestic, open and multilateral system of payments. RuPay facilitates electronic payment at all Indian banks and financial institutions. Apart from the main private-sector and public-sector banks, RuPay cards are also issued by cooperative banks in the country.

(ii) Unified Payments Interface (UPI) (BHIM-UPI)-

Bharat Interface for Money (BHIM) is a payment app that lets you make simple, easy and quick transactions using Unified Payments Interface (UPI). You can make direct bank payments to anyone on UPI using their UPI ID with the BHIM app. You can also request money through the app from a UPI ID.

(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)-

Bharat QR is P2M (Person to Merchant) Mobile payment solution. This solution is mutually derived among NPCI, Visa and Mastercard payment networks. Once the BQR codes are deployed on Merchant locations, user can pay the utility bills using BQR enabled mobile banking apps without sharing any user credentials to the merchant. It is a quick method of payment.

Bharat QR works as an alternate channel of payment, where cardholder has to download his/her bank’s Bharat QR enabled mobile banking app. User has to scan the Bharat QR code at Merchant store and select card to make payment. Once the payment is successful, both cardholder and merchant receive notification in mobile application for successful transaction.

5. What is the Date of Applicability of Section 269SU?

The said provision is made applicable from 1^st January 2020.

6. What is the penal provision, if we have not complied with section 269SU?

The Penal provision for non-compliance of Section 269SU is covered by Section 271DB.

As per Section 271DB, if the above provision not fulfilled w.e.f. 01.02.2020 penalty of 5,000/- per day would be levied after 01st Feb 2020.

However, if the business fulfilled the criteria of install or operationalizes Digital payment system till 31st January 2020 so the penalty would not be levied.

7. Some Frequently Asked Questions on Section 269SU:

i. Is provision of Section 269SU will be applicable to foreign companies?

As we stated above Section 269SU is applicable to all Assessee whether they are Individual , HUF, Company, LLP or having any other status (irrespective of whether resident or not) therefore this is applicable to foreign company which has PE in India subject to its total sales, turnover or gross receipts exceeds fifty crore rupees during the immediately preceding previous year.

ii. Is there any exception for applicability of Section 269SU?

No, till date as such there is no clarification released by Government regarding exceptions for applicability of Section 269SU.

iii. Turnover which needs to be taken into consideration for checking limits of applicability is Gross Turnover or Net Turnover??

As stated above in Point No 2, the turnover means the aggregate amount for which sales are affected or services rendered by an enterprise i.e. Gross Turnover. Unless the CBDT clarifies its stand on this matter, it would be appropriate to ignore the amount of GST while calculating the gross turnover or gross receipts

iv. Can a businessman whose turnover is exceeding Rs 50 cr. received payment by mode of cheque from any client will be allowed under section 269SU?

Section 269SU is not putting restriction on using any of the existing mode of receiving payments but it is only making it mandatory for that businessman whose turnover is exceeding Rs 50 Cr. to have those 3 prescribed modes compulsory in their system as an payment option for their customers.

Therefore, don’t get confused with any rumors which was there in market regarding putting restriction on other payment modes.

You can receive payment by mode of cheque.

v. At the time of considering the turnover for this section, whether we should consider turnover of entire organization as a whole or consider branch wise or outlet wise??

As we mentioned earlier, the turnover means the overall total aggregate turnover. Here turnover of entire organization will be taken into consideration and not for separate branch or outlet wise.

vi. Whether only 1 mode (like UPI QR Code) is sufficient for compliance of law or all three modes is required to implement.?

As per Notification under rule 119AA, all 3 facilities for accepting payment should be provided.

vii. Is there any monetary limit for receiving payments through these prescribed modes on per day basis like section 269ST or Section 40A(3)?

Section 269SU doesn’t prescribed any limit. But the mode prescribed by CBDT has their own monetary limits which you can check on their respective authorized website.

viii. Is there any compulsion on mode for payment for those businessmen who has covered under Section 269SU?

Section 269SU is only talk about facility for accepting payments i.e. receipts from customer and not cover anything about payment mode use by those businessmen who are covered under this section.

Therefore, in respect of payment they are free to use any mode.

ix. Whether this Section 269SU will apply for any receipt from foreign customer in foreign currency?

As per the explanation covered under section, rules, notification and clarification issued by CBDT till date, all the assessee whether resident or not i.e. even covering Foreign company having PE in India within ambit of this section.

Further, there is no specific exclusion stated for any receipts from foreign customer, therefore it will be considered as it is also covered under this section.

Please note that, you can use BHIM-UPI or BHIM-UPI QR Code outside India to send and collect money for your local accounts. NRI/NRE accounts can be used for the same.

8. Extract of Section 269SU

Inserted vide Finance No. 2 Act, 2019 w.e.f. 01-11-2019

Acceptance of payment through prescribed electronic modes.

269SU. Every person, carrying on business, shall provide facility for accepting payment through prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year.

9. Extract of Income Tax Rule 119AA

119AA. Modes of payment for the purpose of section 269SU.-

Every person, carrying on business, if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year shall provide facility for accepting payment through following electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided by such person, 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).

10. Extract of Section 271DB of Income Tax Act, 1961

Inserted vide Finance No. 2 Act, 2019 w.e.f. 1-11-2019

Penalty for failure to comply with provisions of section 269SU.

271DB. (1) If a person who is required to provide facility for accepting payment through the prescribed electronic modes of payment referred to in section 269SU, fails to provide such facility, he shall be liable to pay, by way of penalty, a sum of five thousand rupees, for every day during which such failure continues:

Provided that no such penalty shall be imposable if such person proves that there were good and sufficient reasons for such failure.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner of Income-tax.

11. Extract of Section 10A of Payment and Settlement Systems Act, 2007

Inserted vide Finance No. 2 Act, 2019 w.e.f. 1-11-2019

Bank, etc., not to impose charge for using electronic modes of payment.

10A. Notwithstanding anything contained in this Act, no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961.

12. Some key points from representation submitted by Chamber of Tax Consultants to FM

On 25^th January, 2020, The Chamber of Tax Consultants has made a representation to Hon’ble Finance Minister and submitted that compliance with section 269SU read with Rule 119AA will not only result in incurrence of additional cost but also result into lot of administrative hassle and inconvenience for no value addition. Important points of the representation is as follows:

a) Though the New Section 269SU is a welcome move towards a less cash economy generally, it will create genuine hardship to the assessees engaged in B2B businesses wherein the payments are received electronically or through normal banking channels. Further, it will also create hardships for SEZ units and 100 percent EOUs wherein the majority of the sales is in the form of exports and no cash is involved

b) On a bare reading of the provision, every ‘person’ under the Act, who is carrying on business, would be required to comply with the provisions, provided the threshold of Rs. 50 crores for turnover, sales or gross receipts, is met.

Further, the section states that the provision of such facility is in addition to the facility for other electronic modes of payment, if any, being provided by such person.

Accordingly, in the absence of any exceptions being carved out, even if an assessee is currently accepting payments entirely through electronic modes or through the normal banking channels which are not prescribed in Rule 119AA of the Rules, it would still be required to provide a facility for payment through the electronic modes prescribed in Rule 119AA.

c) It is worth noting that assessees on whom this section applies are already providing facilities for electronic modes of payments and / or are accepting payments through normal banking channels and are already the major contributors to the less-cash economy. Income Tax Act already have enough provisions to curb the receipts and payments in cash. In most of the cases of B2B, individual sales will be more than Rs. 2 lakhs and hence receiving payment in cash will violate the provisions of Section 269ST of the Act. If a person makes payment exceeding Rs. 10,000/-in cash, provisions of Section 40A(3) and 40A(3A) are attracted.

d) Requiring the above category of assessees to additionally comply with the provisions of section 269SU read with Rule 119AA will result in substantial cost both (there is a one time set up cost which is not waived by the service providers, even if the the recurring cost of operating the facilities may be waived ) for the assessees to set up and operate the facilities with no additional benefit either to the assessee or to the economy as a whole, as the desired objective of cashless transactions has already been met by them even before the above provisions were introduced.

e) Further, with regard to the assessees engaged in the B2B business model and having presence at multiple locations across the country (for example companies engaged in FMCG or Pharma sector and selling through stockists or CFAs across the country), it will be pertinent to note that aforesaid facilities will have to be provided at all the locations across the country. This in turn will result into multiplication of additional cost with no value addition at all.

f) Also, practically speaking, in a B2B business model where the transactions are between businesses, use of the 3 prescribed modes of payment will be rarely used as generally the normal banking channels or NEFT or RTGS are the preferred mode of payments. There are payment limits on amounts that can be paid using the methods prescribed and we understand that the maximum payment that may be possible using these modes would be Rs. 100,000 – even for a RuPAY debit card, it will be based on the limit set by the RuPAY card holder. Hence it is almost likely that most B2B operators after incurring set up costs and promoting these methods, may not be able to use any of these methods because of the value of individual transactions.

g) Therefore, compliance with section 269SU read with Rule 119AA will not only result in incurrence of additional cost but also result into lot of administrative hassle and inconvenience for no value addition.

h) Lastly, additional compliance in this regard is also a hindrance in the step toward ‘Ease of doing business’ as it involves additional compliances for a desired outcome which is already been met in the B2B cases even before the said provision was introduced. The refusal of various businesses in certain trades to accept payment by cheques due to the introduction of this section has further made it more difficult to transact regular business.

13. Conclusion:

At the end to conclude, we will definitely say that the introduction of Section 269SU, is great move taken by government with the intention of going one step ahead towards achieving dream of our cashless economy in India.

But there are some more clarifications/ amendments which are expected regarding this section, so that people can able to use and work on this section accordingly without keeping any doubts in their mind.

Such expected clarifications are as under:

• Whether Turnover will be the aggregate turnover inclusive of GST or Exclusive GST?
• Whether the Foreign company which do not having PE in India will also be covered under this Section or not?
• Whether any receipt from foreign customer will also be covered under the ambit of this Section or not? And if the answer is affirmative then how can we use prescribed modes for the same?

We expect that this upcoming budget 2020 will come up with some relevant clarifications regarding Section 269SU and then accordingly people will happily use this Section in there daily business routine without keeping any doubts in their minds.

Bibliography

THE FINANCE (NO. 2) ACT, 2019 NO. 23 OF 2019 – (01/08/2019)

Notification No. 105/2019-Income Tax [G.S.R. 960(E)] – (30/12/2019)

Circular No. 32/2019-Income Tax – (30/12/2019)

Circular No. 12/2020 – Income Tax – (20/05/2020)

(Compiled by CA Sandeep Kanoi and CA Prapti Raut)

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(Republished with amendments till 20th May 2020)

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