Income Tax

Section 269SU of the Income Tax Act

269SU of the Income Tax

Section 269SU under the Income Tax Act was introduced with a view to promote cashless economy and stimulate digital mode of accepting payments. This article seeks to apprise its readers about the scope and applicability of Section 269SU of the Income Tax Act.

Section 269SU of the Income Tax Act: A Brief Overview

Section 269SU provides that every person carrying on a business should provide the facility for accepting payments through prescribed electronic modes. These modes shall be in addition to the facility for any other payment mode that is provided already to customers by such business. This section was introduced in 2019 and subsequently Rule 119AA prescribed the mode of acceptance of payment.

Section 269SU is another part of government’s initiative towards digitalisation and achieving the objective of cashless economy. The government has been promoting various digital modes of payment like BHIM-UPI, Aadhaar Pay, certain debit cards etc. Moreover, the payment system provider cannot levy any charges or merchant discount rate on customers and merchants for using the modes of payment prescribed for Section 269SU.

Applicability of Section 269SU

According to this section, every person carrying on a business must provide the facility for accepting payments through prescribed electronic modes, in case where his/her total sales, turnover or gross receipts in the business is more than 50 crore rupees during the immediately preceding previous year. This section shall apply to all assessee i.e.- individual, HUF, Company, LLP or having any other status.

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Current provisions of Section 269SU read with Rule 119AA, shall also be applicable to the following assessee:

  • Assessee engaged in B2C business model;
  • Assessee who is 100% export oriented;
  • Foreign company carrying on the business through permanent establishment in India.

What do you mean by electronic payment modes?

An electronic payment system is a way through which transactions can be completed without requiring the use of cheques or cash. Some of the most popular e-payment modes online are credit and debit cards. Apart from these, there are some other commonly used payment methods such as transfers, electronic wallets, smart cards etc.

Prescribed electronic payment modes

Businesses falling under Section 269SU are mandatorily required to provide option to their customers to pay through digital payment modes prescribed by CBDT[1], in addition to the facility for other electronic modes of payment. It means that a business may already have payment facilities such as NEFT, RTGS but regardless of existing facility the business needs to maintain the prescribed electronic payment modes.

CBDT prescribed the following electronic payment modes for the purpose of Section 269SU by inserting Rule 119AA-

  • Debit card powered by RuPay-

RuPay facilitates electronic payment at all Indian banks and financial institutions.

  • Unified Payments Interface (BHIM-UPI)-

Through Bharat Interface for Money (BHIM) payment app one can make simple, and quick transactions using Unified Payments Interface (UPI).

  • UPI QR Code (BHIM-UPI QR Code)

Bharat QR serves as an alternate payment channel, where a cardholder can download their bank’s Bharat QR enabled mobile banking app. The user can scan the Bharat QR code and select card to make payment.

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Amendment to PSS Act 2007

Additionally, a new section was inserted to the Payments and Settlement System Act wherein it provided that no bank or system provider shall impose any charge on a payer who makes the payment or on a beneficiary who receives the payment through electronic mode prescribed under Section 269SU of the IT Act 1961.

If banks levy charge on payments made through prescribed electronic modes, then it amounts to breach of Section 10A of the PSSA and Section 269SU of the IT Act. This can invite penal action under both these Acts. Further, in case of transactions done through the prescribed electronic modes, banks must refund the charges collected (if any) and the banks must avoid collecting any such charges from future transactions done through prescribed electronic modes.

How to comply with this section (269SU of the Income Tax Act)?

The taxpayers who log into the e-filing portal will be able to see this pop-up requiring online compliance with this section.

 e-filing portal

The taxpayer needs to select ‘continue’ and from the tab ‘compliance’, you can update the prescribed modes of payment under section 269SU.

Penalty for non-compliance

If a person who is required to provide the facility of payment under the prescribed modes fails to do so, such person will have to pay a penalty of 5000 rupees every day, during which such failure continues.

The Joint Commissioner has the authority to impose the penalty on non-compliance and firstly, a show cause notice will be served, if the person to whom such notice is served proves that there were sufficient reasons for such failure, the Joint Commissioner shall not impose penalty.

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The main objective behind introducing Section 269SU of the Income Tax Act is to promote digital payments among people and businesses. As a business owner you must ensure strict compliance with this section if your total sales, turnover or gross receipts in the business is more than 50 crore rupees during the immediately preceding previous year.

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