> BRIEF HISTORY OF SECTION 269SU, SECTION 271DB AND INCOME TAX RULE 119AA

The Finance Act(Part -II), 2019 introduced new provision w.e.f. 01st November, 2019 that every person who carries on business and his turnover in previous year was more than 50 Crores has to provide facility of accepting payments through prescribed mode apart from other modes which he is already providing.  In the explanatory memorandum it was stated that in order to achieve the mission of government to move towards cash less economy and to promote digital economy the section is being introduced.

Further, new penalty of Rs. 5,000 per day was introduced under section 271DB was also introduced, for not complying with the provisions of section 269SU.

> NOTIFICATION AND CLARIFICATION

Even though section came into effect from 01st November, 2019 no modes were prescribed by the government until 30th December, 2019. On 30th December, 2019 by way of Notification No. 105/2019 government prescribed 3 modes of payment under Rule 119AA, which were as under:

  • Debit Card powered by Rupay
  • BHIM-UPI and
  • BHIM-UPI QR Code

The same was made applicable from 01st of January, 2020.

On the same day Circular No. 32/2019 was issued clarified that relaxation was given with respect to levy of penalty that if person installs such facilities till 31st January, 2020 no penalty shall be levied.

> IMPLICATIONS

So, every person had time from 30th December, 2019 till 31st January, 2020, to be compliant of section 269SU. Further, e-mails were also received from Income Tax Department and those persons whose turnover was more than Rs. 50 Crores had to submit compliance report through Income Tax portal. Filing of such Compliance report was neither there in Act nor in rules. Persons had to install all 3 modes of payment and incur expenses on installations and annual charges, even though their customers were not making use of any, since RTGS and NEFT are the modes though which most of the payments are received by businesses. Further, the modes prescribed had per day limits which further reduced their utility.

> ISSUES IN COMPLIANCE

Various issues arose because of the way in which section was drafted. Though it was introduced with good intentions and motive, but tried to cover everything under the sky. Following cases were also covered which could never have been intention:

  • Person who are working entirely for Government Department/PSU’s.
  • Person dealing in B-2-B model, wherein he does not deal with retail customers.
  • Person dealing in a manner, where he receives payment only through electronic modes.

All these are the instances where the payers are people who are making only online payment are there is no cash involved at all. Even such businesses had to provide all 3 modes of prescribed payments in order to comply with the law, even though none of the parties would ever make payment by any of the mode as prescribed.

> FURTHER CLARIFICATION

Finally, based on various representations received government has once again come-up Circular No. 12/2020 clarifying that provisions of Section 269SU shall not apply, if:

a) Specified person having only B2B transaction (i.e. no transaction with Retail customer/consumer)

b) At least 95% of aggregate of all amounts received during previous year is from mode other than cash.

Though clarification, will provide some relief but still majority of issues continue to persist. As like section and Rule, even clarification is loosely drafted and fails to cure the issues faced by taxpayers. As it provides twin conditions, wherein B-2-C is kept out of it even though all the payments are accepted in such business model in mode other than cash and even for B-2-B where it is exempted, additional condition of 95% of receipts should be from mode other than cash in past year has been put. We hope that in times like these where taxpayers are already burdened with various compliances, no new compliance should be introduced which does not serve any purpose or something which persons are anyways doing it.

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