India’s economy has been changing fast. Over the past decade, the government has been encouraging people and businesses to move away from heavy cash usage and towards safer, faster, and more transparent ways of paying. To make this shift happen, laws were needed that didn’t just suggest digital payments, but actually made them a must for bigger players in the market. That’s where Section 269SU of the Income-tax Act comes in.
This section, introduced in late 2019, requires businesses with an annual turnover of more than ₹50 crore to provide certain government-approved digital payment options to their customers. The idea is simple: if the largest businesses accept digital payments, it sets an example, builds trust in the system, reduces cash-based transactions, and makes tax reporting clearer for everyone involved.
Why the government introduced this provision
The reason behind this law is to encourage digital payments, make transactions more transparent, lessen tax evasion, and move India toward a “less-cash” economy under the Digital India vision.
Importance of promoting digital transactions
Digital payments are faster, cleaner, safer, and more traceable. They help reduce corruption, simplify accounting, and support fair tax systems—and they’re convenient for both buyers and sellers.
Applicability of Section 269SU
Businesses and professionals covered under this section
The rule covers any person or entity carrying on a business—like companies, proprietors, LLPs—with turnover, sales, or receipts exceeding ₹50 crore in the previous year.
Turnover threshold for mandatory compliance
The threshold is ₹50 crore and it’s based on the immediately preceding previous year, not the current year. So if a business crossed ₹50 crore last year, it must comply now.
Sectors and entities exempted from the requirement
B2B-only businesses (selling only to other businesses) might get an exemption if at least 95% of their receipts are not in cash. In that case, they don’t have to offer the digital modes under this rule.
Digital Payment Modes Prescribed
UPI (Unified Payments Interface) options
- BHIM-UPI (the regular UPI app)
- BHIM-UPI QR Code payments—which let people scan and pay with UPI
Debit card and net banking facilities
- Debit cards powered by RuPay must be accepted.
- Net banking and credit cards are not mandatory, but businesses can still offer them.
Other RBI-approved digital payment systems
Only the three modes—RuPay debit card, BHIM-UPI, and UPI QR—are mandatory. Others like wallets or NEFT/RTGS aren’t required but optional.
Compliance Requirements
Setting up facilities to accept prescribed electronic payments
Businesses must physically or digitally enable these payments by Jan 31, 2020. The law came into force in November 2019, and businesses had time to set up the payment systems.
Displaying availability of digital payment options
Businesses should inform customers—through signage or prompts—that these digital payment methods are available. Make it visible and easy for everyone to use.
Reporting and record-keeping responsibilities
When you log in to the Income-tax e-filing portal, you may have to confirm that you’ve set up these modes. This helps the department track compliance.
Penalties for Non-Compliance
Monetary penalty under Section 271DB
If a business fails to provide the required digital payment methods, it faces a penalty of ₹5,000 per day for every day of default, starting from February 1, 2020.
How penalties are calculated
Penalty accrues daily—each day without the facility counts. It’s imposed by the Joint Commissioner of Income-tax.
Circumstances under which penalties may be waived
If the business can show “good and sufficient reasons” (e.g., technical issues), penalties may not apply.
Impact on Businesses and Consumers
How it benefits merchants
Merchants earn more trust, cut cash handling costs, and improve accounting.
Convenience and safety for customers
Customers enjoy quick, contactless, and safe payments—no more counting cash or carrying change.
Role in reducing cash-based transactions
This law nudges businesses (and India) to reduce cash usage, making payments more visible and easier to audit.
Government and RBI’s Role in Implementation
Monitoring and enforcement of compliance
The Income-tax Department monitors compliance—especially via the e-filing portal—and may initiate penalties if defaults occur.
Circulars, notifications, and clarifications issued
Key updates include:
- Rule 119AA—defines the mandatory modes (RuPay debit, BHIM-UPI, UPI QR).
- Notification no. 105/2019 (30 Dec 2019)—names the prescribed modes.
- Circular 12/2020 (20 May 2020)—exempts certain B2B businesses.
Support initiatives for small businesses
Digital India efforts, infrastructure for UPI and PoS, and waiving of merchant discount rates (MDR) for these modes (e.g., UPI, RuPay) help small businesses adopt tech affordably.
Common Challenges and Concerns
Costs of setting up digital payment systems
Though MDR is waived for mandated modes, upfront costs (like PoS devices, internet access) may burden small shops.
Issues in rural and low-internet areas
Connectivity problems and lack of awareness slow adoption. Training and rural infrastructure remain crucial.
Addressing cybersecurity and fraud risks
Digital brings risks too—businesses must guard against scams, fake QR codes, or phishing. Secure systems and customer education help.
Best Practices for Businesses
Choosing reliable payment partners
Pick trusted providers with robust support, known security, and easy setup.
Training staff on digital payment handling
Teach employees to handle payments, assist customers, and troubleshoot issues smoothly.
Ensuring secure and seamless transactions
Regularly check devices, update software, monitor transactions, and educate staff about fraud signs and safe practices.
Future of Digital Payments in India
Moving towards a cashless economy
Section 269SU is a step toward broader digital adoption. India aims to reduce physical cash and enhance financial transparency.
Integration of newer technologies like CBDC
A Central Bank Digital Currency (CBDC) may become another digital method—growing alongside UPI, QR, and cards.
Expected changes in compliance norms
The new Income-tax Bill, 2025 includes clauses similar to 269SU, reinforcing or expanding digital payment mandates.
Conclusion: Section 269SU is important because it helps India move toward a smarter, safer, and more transparent way to handle money. Businesses over ₹50 crore turnover must offer digital payment modes, not just for legal reasons but for trust, convenience, and growth. If you’re a business owner, act now: set up the systems, train your team, and stay tech-ready for the future of digital India.
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