Clause 187 Acceptance of payment through prescribed electronic modes.

Income Tax Bill, 2025

Introduction

Clause 187 of the Income Tax Bill, 2025, continues the legislative initiative to mandate businesses of a certain scale to provide facilities for accepting payments through prescribed electronic modes. This provision, while newly articulated in the 2025 Bill, is fundamentally a successor to Section 269SU of the Income Tax Act, 1961, which was introduced by the Finance (No. 2) Act, 2019, and operationalized through Rule 119AA of the Income-tax Rules, 1962. The underlying policy objective is to promote digital payments, enhance transparency, and combat tax evasion by reducing the scope for unaccounted cash transactions in large businesses. This commentary undertakes a detailed analysis of Clause 187, examining its scope, language, and implications, and compares it with the existing statutory and regulatory framework u/s 269SU and Rule 119AA. The analysis also considers the practical and compliance implications for stakeholders, identifies potential ambiguities, and explores areas that may require further legislative or judicial clarification.

Objective and Purpose

The legislative intent behind Clause 187, as with its predecessor, is to institutionalize digital payment acceptance among large businesses. The move aligns with the government's ongoing policy thrust towards a "less-cash" economy, financial inclusion, and the formalization of business transactions. The provision aims to:

• Ensure that businesses above a specified threshold provide customers with the option to pay through electronic modes.
• Reduce the prevalence of cash transactions, thereby curbing avenues for tax evasion and unaccounted money.
• Facilitate traceability and auditability of business receipts for tax authorities.
• Encourage the adoption of indigenous payment systems such as RuPay and BHIM-UPI, fostering domestic fintech innovation.

The historical context includes a series of measures post-demonetization in 2016 and the Digital India campaign, which have collectively sought to shift the economy towards digital transactions.

Detailed Analysis of Clause 187 of the Income Tax Bill, 2025

1. Text and Structure

   Clause 187 provides: "Every person shall provide facility for accepting payment, through electronic modes as prescribed, in addition to other electronic modes, if any, being provided by him, where-- (a) such person is carrying on business; and (b) total sales, turnover, or gross receipts in such business exceeds fifty crore rupees during the immediately preceding tax year."

   The provision applies to all persons (including individuals, firms, companies, etc.) carrying on business whose sales, turnover, or gross receipts exceed Rs. 50 crore in the preceding tax year. The obligation is to provide "facility for accepting payment, through electronic modes as prescribed," in addition to any other electronic modes already provided.

2. Key Elements
   • Threshold: The monetary threshold is set at Rs. 50 crore in the "immediately preceding tax year." This ensures that the obligation is confined to medium and large businesses, balancing compliance costs with policy objectives.
   • Prescribed Electronic Modes: The phrase "as prescribed" defers the specification of electronic modes to subordinate legislation (rules or notifications), allowing flexibility to adapt to technological advancements.
   • Additionality: The requirement is "in addition to other electronic modes, if any, being provided." This ensures that the prescribed modes are mandatory, irrespective of any other digital payment options already offered.
3. Interpretation and Legal Principles
   • Mandatory Nature: The use of "shall provide" makes the provision obligatory for all qualifying businesses. Non-compliance would likely attract penal consequences, as was the case under the earlier regime.
   • Scope of "Person": The term "person" is broadly defined in the Income Tax Act and would include individuals, HUFs, firms, companies, LLPs, AOPs, BOIs, and any other juridical entities engaged in business.
   • "Prescribed" Modes: The reliance on prescription by rules ensures adaptability but may also create uncertainty until such rules are notified.

Comparison with Section 269SU of the Income Tax Act, 1961

1. Section 269SU of the Income Tax Act, 1961
   • Text: "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."
   • Similarity: The language and structure of Clause 187 are almost identical to Section 269SU. Both provisions target businesses exceeding the Rs. 50 crore threshold and require the provision of "prescribed electronic modes" in addition to any other electronic payment facilities.
   • Difference: Clause 187 refers to the "immediately preceding tax year," whereas Section 269SU refers to the "immediately preceding previous year." While both terms typically refer to the same period under the Income Tax Act, the change in terminology may have interpretive significance, especially if "tax year" is defined differently in the new Bill.
   • Legislative Continuity: Clause 187 is evidently intended as a reenactment or migration of Section 269SU into the new Income Tax Bill, ensuring continuity of policy.
2. Rule 119AA of the Income-tax Rules, 1962
   • Text: Specifies that every person to whom Section 269SU applies "shall provide facility for accepting payment through following electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided by such person, namely: (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)."
   • Prescribed Modes: Rule 119AA operationalizes the statutory mandate by listing specific payment modes, focusing on indigenous systems (RuPay, BHIM-UPI).
   • Continuity and Adaptability: Clause 187, by using "as prescribed," retains the structure for subordinate legislation to specify or update the required modes, allowing for technological evolution.

Practical Implications

1. For Businesses
   • Compliance Obligation: All qualifying businesses must ensure that the specified electronic payment facilities are available at all customer-facing points, whether physical or digital.
   • Cost Implications: While the prescribed modes (RuPay, BHIM-UPI, UPI QR) are generally low-cost, there may still be operational and integration costs, especially for businesses with legacy payment systems.
   • Penalties for Non-compliance: u/s 271DB (which accompanied Section 269SU), non-compliance attracted a penalty of Rs. 5,000 per day. A similar penal provision is likely to be enacted alongside Clause 187.
   • Audit and Record-Keeping: Businesses must maintain records of their compliance, as tax authorities may require evidence during assessments.
2. For Consumers
   • Payment Flexibility: Consumers benefit from a wider choice of payment options, particularly those based on domestic payment systems.
   • Reduced Cash Dependency: The measure reduces the need for cash transactions, promoting a safer and more transparent payment ecosystem.
3. For Regulators and Tax Authorities
   • Enhanced Traceability: Digital payments create an audit trail, facilitating better detection of tax evasion, under-reporting, and money laundering.
   • Enforcement Challenges: Monitoring compliance across thousands of businesses may pose practical challenges, requiring robust reporting and inspection mechanisms.

Ambiguities and Issues in Interpretation

1. Definition of "Prescribed" Modes
   • Until the relevant rules are notified under the new Bill, there may be uncertainty about which electronic modes are mandatory. If the rules are not promptly updated or harmonized with technological changes, this may create compliance gaps.
2. Applicability to E-commerce and New Business Models
   • The provision is drafted in technology-neutral terms, but practical application to online marketplaces, aggregators, and platform-based businesses may require clarification, especially regarding the locus of compliance.
3. Overlap with Other Payment Regulations
   • There may be overlap with RBI guidelines on payment acceptance infrastructure, as well as with other sectoral regulations (e.g., for NBFCs, fintechs). Harmonization is necessary to avoid conflicting obligations.
4. Threshold Determination
   • While the Rs. 50 crore threshold is clear, issues may arise in group companies, franchises, or business divisions regarding aggregation of turnover for compliance determination.

Policy and Technological Considerations

The requirement to provide RuPay and UPI-based payment options is both a policy and technological choice. It supports domestic payment networks, reduces dependence on international card schemes, and may lower transaction costs. However, it also requires businesses to integrate with these systems, which may be a challenge for legacy businesses or those with international customer bases. The "as prescribed" formulation allows the government to update the list of mandatory payment modes as new technologies emerge (e.g., digital wallets, account aggregators, CBDCs), ensuring future-proofing. However, it also places a premium on timely and transparent rule-making.

Potential Areas for Reform or Judicial Clarification

• Clarification of Applicability: Guidance may be needed on the application of the threshold to business groups, franchises, and online platforms.
• Penalty Provisions: The quantum and nature of penalties for non-compliance should be proportionate and provide for reasonable cause exceptions.
• Harmonization with Other Laws: The provision should be harmonized with RBI and sectoral regulations to avoid conflicting obligations.
• Consumer Awareness: Efforts should be made to educate consumers about their rights to demand payment by the prescribed modes.
• Technological Upgradation: The government should ensure that the prescribed modes keep pace with technological developments and that businesses are given adequate time and support to comply.

Conclusion

Clause 187 of the Income Tax Bill, 2025, is a direct legislative successor to Section 269SU of the Income Tax Act, 1961, and is operationalized through subordinate rules akin to Rule 119AA. The provision reflects a continued commitment to promoting digital payments and financial transparency among large businesses. While the structure and intent remain largely unchanged, the shift to the new Bill provides an opportunity to address ambiguities, enhance compliance mechanisms, and ensure harmonization with evolving payment technologies and regulatory frameworks. The provision's success will depend on clear rule-making, effective enforcement, and ongoing adaptation to technological change. Stakeholders, including businesses, consumers, and regulators, must remain vigilant to ensure that the policy objectives of transparency, inclusion, and ease of doing business are achieved without imposing undue compliance burdens.

Full Text:

Clause 187 Acceptance of payment through prescribed electronic modes.