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Tax Alert: CBDT notifies acceptable electronic payment modes

22 January 2020

With an intent to encourage electronic payments, section 269SU was inserted by the Finance (No.2) Act 2019 (Finance Act). As per this section, every person having a business turnover of more than INR 500 million (such person hereinafter referred to as ‘specified person’) is mandatorily required to provide facilities for accepting payments through prescribed electronic modes. In case a person fails to provide such facilities, a penalty of INR 5,000 per day of default could be levied.

Recently, the CBDT has issued notification1 for inserting Rule 119AA in the Income Tax Rules, 1962 (IT Rules) with effect from 1 January 2020. As per this Rule, payments made by following mode are now being prescribed for the purpose of section 269SU of the IT Act:

  • Debit Card powered by Rupay;
  • Unified Payments Interface (UPI) (BHIM-UPI); and
  • Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)

Separately, CBDT has also issued a Circular2 on the same date. This circular clarifies that the above-mentioned electronic modes of payment are in addition to the facility for other electronic modes of payment, if any, already being provided by specified persons. Further, in order to allow enough time to specified persons to get the prescribed electronic mode of payment system operationalised, it is clarified that no penalty will be levied if such a system is installed and operationalised on or before 31 January 2020.

BDO Comments

While the section is introduced, the prescribed mode of payment has now been notified by the CBDT. Now that the electronic modes of payments have been prescribed, the specified person will need to ensure that the prescribed mode of payment is in place. Taking into consideration that setting up and operationalisation of the electronic mode would entail time, CBDT has granted a grace period of 30 days. This is a welcome move by the Government as this will give time for the taxpayers to transition to the electronic payment system without attracting the penalty of INR 5,000 per day.

1[Notification No. 105/2019 (G.S.R. 960(E), (F.NO. 370142/35/2019-TPL) dated 30 December 2019]

2[Circular No. 32/2019, (F.NO. 370142/35/2019-TPL), dated 30 December 2019]