Other Electronic Modes of Payments Prescribed under the Income Tax Act

other-electronic-modes-of-payments-prescribed-under-the-income-tax-act


After section 269SU, the CBDT has notified electronic modes of payments which shall be covered as digital payments under the Income Tax Act, 1961 apart from payment through a bank, account payee cheque and draft. These are independent of payment methods prescribed under section 269SU. 

Vide Notification No. 08/2020 dated 29.01.2020, the CBDT has amended the Income Tax Rules, 1962 and inserted new Rule 6ABBA to prescribe for other electronic modes of payments as prescribed for certain sections of the Act as per amendments introduced by the Finance Act, 2019.


The Finance Act, 2019 has amended certain provisions of the Income Tax Act, 1961 to provide for certain modes of payment apart from payment by an account payee cheque and account payee draft to discourage cash payments and to promote digital payments in various modes.

Recently, the government has introduced section 269SU which prescribes for certain business assessees compulsorily to provide certain modes of digital payments to its customers.

Apart from section 269SU, many other provisions of the Income Tax Act, 1961 prohibits making a payment or accepting payments in cash subject to certain threshold limits.

In the past, income tax law prescribed accepting or making a payment by an account payee cheque or account payee bank draft in order to discourage cash transactions. Over the period, many other electronic modes of payments came into existence like payment by RTGS, NEFT, net banking, etc. However, the Income Tax Act was not amended to capture the developments in the financial arena. It has even landed many disputes between the taxpayers and the income tax department.

Of late, the Income Tax Act was amended to cover transactions done through the use of an electronic clearing system through a bank account.

The amendment was also not sufficed due to the fact that there are many other modes of payments surfaced in the system which do not use cash.

In this context, we are taking the example of Section 269SS of the Income Tax Sct, 1961. It provides for payment modes for accepting certain loans, deposits, and a specified sum other than cash. Prior to amendment by the Finance (No. 2) Act, 2019, this section only provides for accepting any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account

A similar provision exists in certain other sections of the Income Tax Act, 1961 viz section 269T, section 269ST, etc.
The Finance (No. 2) Act, 2019 has amended the following 12 sections further to provide for acceptance or payment by any other prescribed modes - 

Sl.
Sections
Headings
Pre-amendment provisions covered
Amendment introduced
1
Section 13A
Receipt of donation in excess of Rs. 2,000 by a political party shall be the income if not received by the prescribed modes.
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
2
Section 35AD
Deduction in respect of capital expenditure on specified business.
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
3
Section 40A
Payment in excess of Rs. 10,000 other than prescribed modes
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
4
Section 43
Expenditure incurred in excess of Rs. 10,000 for acquisition of any asset shall not become a part of ‘actual cost’ if incurred in other than prescribed modes
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
5
Section 43CA
Where any land and building is received for inadequate or without consideration compared to stamp duty valuation and held as stock-in-trade
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
6
Section 44AD
Concessional rate of 6% shall apply on presumptive income
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
7
Section 50C
Where any land and building is received for inadequate or without consideration compared to stamp duty valuation and held as a Capital Asset.
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
8
Section 56
Refers to section 56(2)(x) where any immovable property is received for inadequate or without consideration compared to stamp duty valuation
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
9
Section 80JJAA
Deduction in respect of employment of new employees, where the emoluments are required to be paid in the prescribed modes.
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
10
Section 269SS
Mode of taking or accepting certain loans, deposits and specified sum.
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
11
Section 269ST
Mode of accepting payments in excess of Rs. 2 Lakh
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
12
Section 269T
Mode of repayment of certain loans or deposits.
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

Please note section 80G also prohibits making a donation in excess of Rs. 2,000 in cash else deduction will not be allowed. However, the language used in section 80G is different from the language used in the aforesaid 12 sections. Section 80G provides that "No deduction shall be allowed under this section in respect of donation of any sum exceeding two thousand rupees unless such sum is paid by any mode other than cash."

Hence, all other modes of payments as available in the system are already allowed. Hence, no separate mode of payments is required to be notified.

The CBDT has notified the 'other electronic mode of payments' by a Notification No. 08/2020 dated 29.01.2020 to provide for the followings as an acceptable electronic mode of payments-

(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhar Pay”;

For this purpose, a new Rule 6ABBA with the heading 'Other electronic modes' is introduced in the Income Tax Rules, 1962. This rule has been given a retrospective effect and will come into force from 01-09-2019 even though the notification was issued on 29-01-2020.

This notification has also amended the marginal heading of Rule 6DD to incorporate 'or use of electronic clearing system through a bank account or through such other electronic mode as prescribed in rule 6ABBA' in the marginal heading.

The new marginal heading of Rule 6DD thus reads as follows-

“Cases and circumstances in which a payment or aggregate of payments exceeding ten thousand rupees may be made to a person in a day, 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 prescribed in rule 6ABBA.”

Further, the opening paragraph of the provision contained in Rule 6DD is also amended to include 'or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees' in the rule.

Thus the opening paragraph of the Rule 6DD reads as follows-

"No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, 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 prescribed under rule 6ABBA, exceeds ten thousand rupees in the cases and circumstances specified hereunder, namely :—"

Rule 6DD is further amended to exclude payments by use of an electronic clearing system through a bank account, credit card,  and debit card as these are included in the new Rule 6ABBA.

Rule 6DD allows paying an amount in excess of Rs. 10,000 in cash on a day when the banks are closed either on account of holiday or strike. This provision contained in clause (j) is removed. Henceforth, no payment in cash in excess of Rs. 10,000 can be made on a bank holiday or bank strike day.

It should be noted that though the holiday and strike day is excluded but no provision is made for internet shutdown day. All the prescribed electronic modes of payments works on internet and if the internet system is not working no electronic modes can be used. Recently, we have seen that due to anti-CAA protest internet services were shut down by the government in many parts of the country. When the internet system is down, payments cannot be made using the electronic system. However, such an exclusion is not given in the rule.

The Explanatory Memorandum to the notification certifies that no person was adversely affected by giving retrospective effect to this notification. Hence, this amendment has no adverse impact on any taxpayers and any transaction done in the period from 01-09-2019 to 29-01-2020 on the basis of the existing provisions shall be valid.


Read the full text of the Notification

MINISTRY OF FINANCE
(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION

New Delhi, the 29th January, 2020

Income-tax

G.S.R. 56(E).—In exercise of the powers conferred by section 295 read with section 13A, section 35AD, section 40A, section 43, section 43CA, section 44AD, section 50C, section 56, section 80JJAA, section 269SS, section 269ST and section 269T of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. Short Title and commencement.—

(1) These rules may be called the Income-tax (3rd Amendment) Rules, 2020.

(2) Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962 (hereafter referred to as the principal rules),− (i) after rule 6ABB, the following rule shall be inserted and shall be deemed to have been inserted from the 1st day of September, 2019, namely:-

“Other electronic modes

6ABBA. The following shall be the other electronic modes for the purposes of clause (d) of first proviso to section 13A, clause (f) of sub-section (8) of section 35AD, sub-section (3), sub-section (3A), proviso to subsection (3A) and sub-section (4) of section 40A, second proviso to clause (1) of Section 43, sub-section (4) of section 43CA, proviso to sub-section (1) of section 44AD, second proviso to sub-section (1) of section 50C, second proviso to sub-clause (b) of clause (x) of sub-section (2) of section 56, clause (b) of first proviso of clause (i) of Explanation to section 80JJAA, section 269SS, section 269ST and section 269T, namely:−

(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhar Pay”;

(ii) in rule 6DD,−

(a) for the marginal heading, the following marginal heading shall be substituted, namely:−

“Cases and circumstances in which a payment or aggregate of payments exceeding ten thousand rupees may be made to a person in a day, 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 prescribed in rule 6ABBA.”;

(b) In the opening paragraph, for the words “account payee bank draft, exceeds twenty thousand rupees”, the words, figures and letters “account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees” shall be substituted;

(c) in clause (c), sub-clauses (v), (vi) and (vii) shall be omitted;

(d) clause (j) shall be omitted.

[Notification No. 8/2020/F. No. 370142/14/2019-TPL]
SAURABH GUPTA, Under Secy. (Tax Policy and Legislation Division)

Explanatory Memorandum :− It is certified that no person is being adversely affected by giving retrospective effect to this notification, in relation to amendment as provided in sub-clause (i) of clause 2 of this notification.

Note: The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O. 969(E), dated the 26th March, 1962 and last amended vide notification number G.S.R 14(E), dated 6th January, 2020.

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