Section 269SU Applicability

Section 269SU of Income Tax Act – Applicability for B2B Business

Section 269SU of Income Tax Act – Applicability for B2B Business

To promote the digital payment and move towards the cashless economy, the Finance Act, 2019, introduced section 269SU under the Income Tax Act. Provisions of section 269SU apply to every person carrying on the business and having turnover/ sales/ gross receipts of more than INR 50 Crores (from now on referred to as the ‘specified persons’). Section 269SU mandates such a specified person to provide a facility for accepting payments through the prescribed electronic mode. The provisions of section 269SU of the Income Tax Act was made effective from 1st November 2019.

However, vide notification no. 105/2019 dated 30th December 2019, rule 119AA was inserted which prescribed the following three electronic payment modes to be provided by the specified person to their customers-

  1. Debit card (powered by RuPay).
  2. Unified Payments Interface (UPI) [BHIM-UPI].
  3. Unified Payments Interface Quick Response Code (UPI QR Code) [BHIM UPI QR Code].

The present article covers the recent clarification issued by the Board, relaxing the B2B business from complying with the provisions of section 269SU of the Income Tax Act.

Recent relaxation under section 269SU

Overall, there are two working models, B2C (i.e., Business to Consumer) and B2B (i.e., Business to Business). As seen above, the primary purpose of the introduction of section 269SU is to promote digital payment. The applicability of provisions of section 269SU depends on the turnover, and the same is equal for both the working model.

Practically application of provisions of section 269SU to B2B business has the following two issues-

Already existing provisions which restricts the cash transaction to a significant extent under B2B business-

  1. Section 269ST of the Income Tax Act restricts receiving payment of more than INR 2 Lakhs in cash.
  2. Section 40A(3) and Section 40A(3A) of the Income Tax Act restrict cash payments exceeding INR 10,000.

Since, above existing provisions already limits the cash transaction, imposing provisions of section 269SU to B2B business doesn’t fulfill any purpose.

Lower maximum payment limit under the prescribed electronic mode-

The three prescribed electronic modes have a maximum payment limit as detailed hereunder-

Sr. No.Prescribed electronic modeMaximum payment limit
1Debit card (powered by Rupay)The maximum limit set by Rupay debit card holder.
2BHIM- UPIINR 40,000 per day for one bank account. The maximum limit is available per bank account linked to BHIM.
3BHIM- UPI QR CodeINR 40,000 per day for one bank account. The maximum limit is available per bank account linked to BHIM.

The above-mentioned maximum payment limit is so low that it is practically not possible to use any of the prescribed electronic payment modes for B2B transactions. B2B business are generally transacting through electronic modes like ‘National Electronic Funds Transfer’ i.e., NEFT and ‘Real Time Gross Settlement’ i.e., RTGS.

Thus, even if forcefully applying the provisions of section 269SU, the prescribed electronic payment modes are set up by the B2B business. Firstly, the payment modes will not be useful because of the low transaction limit. Secondly, the B2B business will end up incurring the additional cost with no value addition at all.

In order to avoid the above hardship, the Central Board of Direct Taxes, vide circular no. 12/2020 dated 20th May 2020, has clarified that the provisions of section 269SU shall not apply if the following two conditions are satisfied-

  1. The specified person is engaged in providing only B2B transactions; and
  2. Out of the total of all the amounts received during the previous year, at least 95% should have been received from the mode other than cash.

Thus, in case both the above conditions are satisfied, provisions of section 269SU shall not apply to the B2B business, and accordingly, they are not required to provide the facility of prescribed electronic mode.

Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.