The Central Board of Direct Taxes (CBDT) has issued Circular No.12/ 2020 dated 20th May, 2020 clarifying that the provisions of section 269SU of the Income-tax Act, 1961 (the Act) are not applicable to a person who has only Business to Business (B2B) transactions and receives atleast 95% of sales/ turnover/ Gross Receipt amounts through any mode other than Cash.
Section 269SU was recently inserted in the Act vide the Finance (No.2) Act, 2019 with effect from 1st November, 2019. It provides that, “Every person, carrying on business, shall provide facility for accepting payment through prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year.”
Subsequently, vide a Notification No. 105/2019 dated 30th December, 2019, Rule 119AA was inserted in the Income-tax Rules, 1962 to provide that the following three electronic modes of payment are prescribed for the purpose of section 269SU :
(i) Debit Card powered by RuPay;
(ii) Unified Payments Interface (UPI) (BHIM-UPI); and
(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)
Representations were made by various organisations stating that the above requirement of mandatory facility for payments through the prescribed electronic modes is generally applicable in B2C (Business to Consumer) businesses, which directly deal with retail customers. Moreover, since the prescribed electronic modes have a maximum payment limit per transaction or per day they are not so relevant to B2B (Business to Business) businesses, which generally receive large payments through other electronic modes of payment such as NEFT or RTGS. Mandating such businesses to provide the facility for accepting payments through prescribed electronic modes would cause administrative inconvenience and impose additional costs.
Accordingly, the CBDT has now clarified that that the provisions of section 269SU of the Act shall not be applicable to a specified person having only B2B transactions (i.e. no transaction with retail customer / consumer) if at least 95% of aggregate of all amounts received during the previous year, including amount received for sales, turnover or gross receipts, are by any mode other than cash.
Ideally, in legal sense, the Central Government ought to have amended the provisions of section 269SU of the Act to exempt B2B business. However, since CBDT Circulars are binding on the Income-tax Department, they would have to allow B2B business the benefit of the aforesaid Circular and there should not be any issue in this regard.
