Is Cash or Cheque Payment or Receipt Banned-Section 269SU

is-cash-or-cheque-payment-or-receipt-banned-section-269su

After the introduction of a new section 269SU in the Income Tax Act, 1961 by the Finance (No.2) Act, 2019 a rumor spread that effective from 1st November 2019 receipt and payment in cash and cheque is restricted or banned or that such a restricted payment or receipt in cash or cheque can be transacted with an undertaking.

In this article, the truth behind the rumor will be unveiled and why such confusion surfaced will also be explained.


    Introduction

    How much is the concern that a business entity effective November 1, 2019, cannot accept or pay in cash or cheque for business transactions?

    Is receipt from debtors or payment to vendors can be made only through RTGS/NEFT or debit/credit cards?

    Let us look at the provisions of income tax law to understand the misunderstanding of the law.
      
    The Finance (No. 2) Act, 2019 has introduced a new section in the Income Tax Act, 1961 namely, section 269SU to provide for the acceptance of payment through prescribed electronic modes.

    Section 269SU reads as follows-

    “269SU. 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.”

    What does section 269SU say?

    The section merely casting a duty on the business entity to provide for a facility to pay in prescribed electronic modes of payment to its customers.

    The features of section 269SU are listed below-

    1. This section is applicable to every person carrying on a business.

    2. Such a business may be carried on for-profit or non-profit motive.

    3. It is not necessary that the income must be chargeable to income tax under the head 'Business income'. Even if the income is exempt but the activities carried on by the person qualifies as 'business', the section will apply.

    4. Remember, a Trust carrying on business activity if the turnover of the Trust from the business activity exceeds the threshold limit of Rs. 50 crore then section 269SU will apply to the Trust.

    5. Though the section has used the term 'gross receipts' in addition to 'total sales' and 'turnover' as a threshold limit criteria, the section does not apply to Professionals like doctors, chartered accountants, etc. even though the gross receipts from the profession exceeds Rs. 50 crore.

    This is because the section will apply to a person carrying on a business and not a profession. The term 'gross receipts' is normally used for the 'Profession'.

    6. The threshold limit of Rs. 50 crore turnover is with respect to the preceding previous year and not in the current year. If the turnover of the preceding financial year is more than Rs. 50 crore then in the current year section 269SU will apply.

    7. The CBDT is yet to notify the prescribed modes of the electronic modes of payments for section 269SU.

    8. The section requires that such a business entity shall provide the facility to its customers or debtors to pay through prescribed electronic modes.

    9. If the business entity is already providing any existing facility for electronic mode of payment then such a business entity shall provide the new facilities which will be prescribed under this section.

    10. It is a mandatory provision for an eligible entity to provide the facility for digital payments. The payer may or may not pay through the prescribed modes.

    For example, a large retail store is accepting the payment from its customers at the billing section wither through cash or debit or credit card only. So presently the store is providing a facility for card payments only as an electronic mode of payment.

    If under section 269SU, other electronic modes of payments are notified or prescribed, say, BHIM UPI, UPI-QR Code, Aadhaar Pay, Wallets, etc. then such Store is required to provide the facility to pay by these new modes in addition to existing facility of card payments.

    Why is section 269SU introduced?

    The primary objective of the provision is to encourage the digital economy and move towards a less-cash economy. After the introduction of the provision, a business entity is duty-bound and under a legal obligation to provide the electronic mode of payments facility to its customers.

    However, the limit seems to be much on the higher side if we look into the objectives of introducing the provision. The threshold limit of Rs. 50 crore turnover is too large to cover a wide range of business entities into the electronic mode of payments ambit.

    Such a business concern cannot deny acceptance of payment in electronic mode from its customers.

    What are the consequences of violating section 269SU?

    To ensure compliance with the provisions of section 269SU, the law has provided a penalty for failing to comply with the provisions of section 269SU.

    For this purpose, section 271DB is introduced by the Finance (No. 2) Act, 2019. The said section reads as follows-

    “271DB.(1) If a person who is required to provide facility for accepting payment through the prescribed electronic modes of payment referred to in section 269SU, fails to provide such facility, he shall be liable to pay, by way of penalty, a sum of five thousand rupees, for every day during which such failure continues:

    Provided that no such penalty shall be imposable if such person proves that there were good and sufficient reasons for such failure. 

    (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner of Income-tax.”

    1. The penalty is Rs. 5,000 per day for each day of default in complying with section 269SU.

    2. The penalty will be imposed on the eligible entity.

    3. The penalty shall be imposed by the Jt. Commissioner of Income Tax.

    Hence, it can be seen that the non-compliance of section 269SU is a very costly affair.

    What are the charges for digital payments?

    To promote the digital payments and to make it cost-effective, a consequential amendment is also made in the Payment and Settlement Systems Act, 2007.

    A new section 10A is added in the Payment and Settlement Systems Act, 2007 to provide for waiving the charges on the digital payments for both the payer and the receiver.

    Section 10A reads as follows-

    “10A. Notwithstanding anything contained in this Act, no bank or system provider shall impose any charge upon anyone, either directly or indirectly, for using the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961.”.

    With this amendment, the government has prohibited banks and payment system providers from imposing any charge on transactions through electronic modes of payments prescribed under section 269SU.

    For this purpose, the CBDT has invited applications from banks and system providers to include their payment systems under the list of prescribed electronic modes of payments under Section 269SU.

    Why the confusion on Cash or Cheque Payment or Receipt?

    The main reason for surfacing the confusion was due to the expression 'electronic modes of payments' used in section 269SU. The confusion or misunderstanding was aggravated due to misinterpretation of the same.

    There is a lot of rumor and gossip that is going on all around which says that the persons with turnover exceeding Rs. 50 Crore has to obtain the declaration from the purchaser that they are not having the facility of making payment by banking channel and that’s why they are making the payment in cash or through cheque or draft.

    It is not correct.

    Section 269SU though mandates providing the facility for payment in electronic modes by an eligible entity but do not prohibit other modes of payments viz payment in cash (subject to section 40A(3), section 269ST), cheque, draft, etc. As such, no declaration or undertaking is required to be obtained.

    Further, there is no provision in the law to obtain such a declaration or undertaking from the buyer or any other person.

    Such a hyper-interpretation is beyond the provisions of law.

    Such type of restriction is expressly required in the law itself. For example, section 40A(3) of the Income Tax Act, 1961 prohibits payment of any expenditure in excess of Rs. 10,000 otherwise than by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

    When section 40A(3) allows payment in a/c payee cheque, draft, RTGS, NEFT, etc., then how the section 269SU prohibits such mode of payments given that section 269SU has no overriding effect with respect to other provisions of the law.

    Similar provisions are contained in section 13A, section 35AD,  section 269SS, section 269ST, etc. of the Income Tax Act, 1961. 

    Hence such confusion is based on the misinterpretation of the provision and is wholly unfounded and contrary to the provisions of the law.

    Payment or receipt in cash or cheque to vendors or from debtors is a valid mode of transaction and is not banned or restricted. No undertaking etc is required.


    CBDT's invitation for application

    CBDT's invitation for application for prescribing of certain electronic modes of payment under Section 269SU of the Income-tax Act, 1961 is given below-


    FTS- 1275045/2019
    Government of India
    Ministry of Finance
    Department of Revenue
    Central Board of Direct Taxes
    ****************************

    New Delhi, dated 18th October 2019

    NOTICE

    Prescribing of certain electronic modes of payment under Section 269SU of the Income-tax Act, 1961-Invitation for application

    In furtherance to the declared policy objective of the Government to encourage digital economy and move towards a less-cash economy, a new provision namely Section 269SU was inserted in the Income-tax Act 1961, vide the Finance (No. 2) Act 2019, which provides that every person having a business turnover of more than Rs 50 Crore shall mandatorily provide facilities for accepting payments through prescribed electronic modes.

    2. Further, a new provision namely Section 10A was also inserted in the Payment and Settlement Systems Act 2007, which provides that no Bank or system provider shall impose any charge on a payer making payment, or a beneficiary receiving payment, through electronic modes prescribed under Section 269SU of the Income-tax Act 1961.

    3. These provisions shall come into force with effect from 1st November, 2019. The Central Government proposes to prescribe certain electronic modes of payment for the purposes of Section 269SU.

    4. Accordingly, applications are hereby invited from the Banks and Payment System Providers, operating an authorised payment system under the Payment and Settlement Systems Act 2007, who are willing that their payment system may be taken into consideration for being prescribed as an eligible electronic payment mode under Section 269SU of the Income-tax Act 1961.

    5. The application shall be made in the format given below, and shall be duly signed by the authorised signatory.

    Name of the Bank/payment system provider
    Complete address
    PAN
    Details of license/ registration number to operate the payment system
    Brief note/ description on the payment system proposed to be prescribed u/s 269SU





       

    The expression of intent may be sent by e-mail at dirtp14@nic.in by 28th October 2019. Any query or clarification in this regard may be made at 011-2309 2964.


      Sd/-
    Ankur Goyal
    Under Secretary (TPL-IV)

    Update:
    CBDT Notified Prescribed Modes of Payment for Section 269SU by Notification No. 105/2019 dated 30-12-2019

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