Tax Alert: Exemption from prescribed electronic payment modes
22 May 2020
In order to encourage digital transaction and move towards a less-cash economy, section 269SU in the Income-tax Act, 1961 (‘IT Act’) was introduced by the Finance (No. 2) Act, 2019. Thereafter, the Central Board of Direct Taxes (‘CBDT’) notified a Rule 119AA in the Income Tax Rules, 1962 (‘IT Rules’) wherein the following 3 electronic payment modes were prescribed to encourage digital payments:
- 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).
Please click here to read our Alert in this regard.
Subsequently, representations were made to the CBDT by various stakeholders expressing that B2B (Business to Business) businesses will be exempted from the applicability of above-mentioned payment modes on following reasoning:
- The above prescribed payment modes are generally applicable to B2C (Business to Consumer) businesses, which directly deal with retail customers.
- These payment modes have a limit of maximum payment per transaction or per day, making them irrelevant to B2B (Business to Business) businesses where generally transaction amounts are large.
- B2B transactions are being carried out through electronic media such as NEFT or RTGS.
- Mandating above prescribed additional electronic payments would cause administrative inconvenience and impose additional costs.
In view of the above representation, CBDT has recently issued a Circular which has clarified that provisions of section 269SU of the IT Act shall not apply to the specified persons having only B2B transactions (i.e. no transaction with retail customer/consumer) if at least 95% of aggregate of all amounts received during the fiscal year, including amounts received for sales, turnover or gross receipts, are by any mode other than cash.
The CBDT clarifying non-applicability of the provisions of section 269SU of the IT Act in case of B2B businesses is a welcome move. However, the Circular is silent on the point of time from when such businesses shall be required to maintain the above prescribed payment modes if the 95% threshold is breached. Further, for the purpose of 95% threshold, the Circular provides aggregate of all amounts received during the fiscal year. The expression ‘all amounts received’ shall include all receipts and not from business, and therefore such businesses would need to be watchful for this threshold limit.
 Section 269SU of the IT Act provides that every person having a total sales, turnover or gross receipts of more than INR 500 million (specified person) shall mandatorily provide facilities for accepting payments through prescribed electronic modes.
 [Notification No. 105/2019 (G.S.R. 960(E), (F.NO. 370142/35/2019-TPL) dated 30 December 2019]
 [Circular No. 12/2020, (F.NO. 370142/35/2019-TPL), dated 20 May 2020]