From Feb 1, businesses will be fined ₹5,000/day if they do not offer digital payment facility

Shishir Sinha New Delhi | Updated on December 31, 2019 Published on December 31, 2019

Penalty will apply to firms with turnover of ₹50 cr or more

Come February 1, businesses with turnover of ₹50 crore or more that failed to operationalise payment system through RuPay debit card or BHIM UPI, will be liable to pay penalty at the rate of ₹5,000 per day.

The Central Board of Direct Taxes (CBDT) has notified a Budget announcement which said that business establishments with annual turnover of more than ₹50 crore, shall offer low-cost digital modes of payment (such as BHIM UPI, UPI QR Code, Aadhaar Pay, Debit Cards, NEFT, RTGS etc.) to their customers, and also no charge or Merchant Discount Rates (MDR) shall be imposed on customers and merchants.

MDR refers to the cost paid by merchant to a bank for accepting payment through electronic means such as credit card, debit card etc. But if neither the customer nor the merchant foots the MDR bill, who then would bear the cost? In her budget speech, Finance Minister Nirmala Sitharaman had said that the Reserve Bank of India (RBI) and the Banks will absorb these costs from the savings that will accrue to them on the account of handling less cash, as people move to digital modes of payment. Still, experts feel that there will be some problems for non-bank payment facility providers.

Also read: Why the MDR controversy refuses to die down

In the notification dated December 30 has listed debit card powered by RuPay, Unified Payments Interface (UPI) (BHIM-UPI) and Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code) as prescribed modes of payment for undertaking digital transactions without any MDR. Businesses will be free to use any other electronic mode of payments apart from those prescribed, but for these, there will not be mandatory requirement to waiver MDR.

CBDT’s clarification

Along with the notification, the CBDT has also issued a clarification which said that with effect from January 1, 2020, specified person i.e., businesses with annual turnover of ₹50 crore or more “must provide the facilities for accepting payment through the prescribed electronic modes,” without any charge, including MDR.

Further it has been said that the Finance Act 2019 has inserted a new Section (271DB) which provides for levy of penalty of ₹5,000 per day in case of failure by the specified person to comply with the order (i.e., providing facility of payment through the prescribed electronic modes).

“In order to allow sufficient time to the specified person to install and operationalise the facility for accepting payment through the prescribed electronic modes, it is hereby clarified that the penalty under Section 271DB of the Act shall not be levied if the specified person installs and operationalises the facilities on or before January 31, 2020,” the circular said.

Further it added that if the specified person fails to do so, he shall be liable to pay a penalty of ₹5,000 per day from February 1, 2020, under Section 271DB of the Income Tax Act for such failure. However, the law also provides that no such penalty will be levied if such person proves that there were good and sufficient reasons for such failures.

The issue of providing payment facility minus MDR came up for discussion during meeting between Finance Minister Nirmala Sitharaman and the Chiefs of Public Sector Banks last week, and accordingly final date was decided for the implementation. However, this decision has come as a shock for non-bank payment industry players. They feel that such a decision will hurt their business prospects and affect further investment prospect.

Published on December 31, 2019
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