Section 269SU of Income Tax Act 1961
Section 269SU of Income Tax Act, 1961 – Applicability for B2B businesses, The Finance Act, 2019 inserted section 269SU (Acceptance of payment through prescribed electronic modes) with effect from 1st November 2019. The section provides that every person carrying on business shall (mandatorily) provide the facility to make payments through prescribed electronic modes, apart from other electronic modes of payment. This provision is applicable to those persons, whose total sales/ turnover or gross receipts from the business exceeds (is greater than) Rs. 50 crores in the immediately preceding previous year.
For example, this Section 269SU of Income Tax Act, 1961 shall be applicable to a person in current financial year 2020-21, if his total sales/ turnover or gross receipts was greater than Rs. 50 crores in the previous financial year 2019-20. For the purpose of this section, the prescribed electronic modes notified by the government under rule 119AA (Modes of payment for purpose of section 269SU) are as follows:
(1) Debit card powered by RuPay
(2) Unified Payments Interface (UPI)
(3) Unified Payments Interface Quick Response Code (UPI QR Code)
The main intention of this Section 269SU of Income Tax Act, 1961 seems to be promoting digital payments in India. However, the drawback arises for those persons who carry on B2B businesses. In case of persons carrying on B2C businesses, they directly interact with the retail consumers where the payment amounts involved in the transactions may be low compared to those persons having B2B businesses. The drawback is mainly due to the reason that the above notified modes of payment come with a payment limit, as follows:
Modes of Payment under rule 119AA
Maximum limit for payment
|1.||Debit card powered by RuPay||Limit set by cardholder|
|2.||UPI||Rs. 40,000/- per transaction and per day for one bank account|
|3.||UPI QR Code||Rs. 40,000/- per transaction and per day for one bank account.|
Since B2B businesses deal with large payment amounts, they generally use other electronic modes of payment such as NEFT or RTGS. The above prescribed electronic modes which have maximum limits, makes it practically impossible for persons carrying B2B businesses, to use it. If implemented as mandated by the Section 269SU of Income Tax Act, 1961, they would serve no or extremely little purpose for those businesses. It would also cause administrative inconvenience and impose additional costs for the business. Not implementing this may also lead to payment of unnecessary penalty under section 271DB.
However, keeping all these constraints in mind, the Central Board of Direct Taxes released a circular (Circular No. 12/2020) dated 20th May 2020, clarifying that the provisions of section 269SU of Income Tax Act shall not be applicable to those who satisfy the following conditions:
(i) Persons having only B2B transactions (no transaction with retail consumer); and
(ii) If at least 95% of total amounts received during the previous year for sales, turnover or gross receipts are received by any mode other than cash.
To summarize, the provisions of Section 269SU of Income Tax Act, 1961 shall be applicable to all persons carrying on B2C businesses and having total sales/ turnover or gross receipts exceeding Rs. 50 crores in previous year. When it comes to persons carrying on B2B businesses, it depends on whether the total sales/ turnover or gross receipts condition given in the section and the additional conditions given in the relevant circular is satisfied or not, which can be presented as follows:
Section 269SU of Income Tax Act, 1961 – Applicability for B2B businesses