How the Industry is coping with the CBDT Mandate for Businesses to Accept Digital Payments The move to promote the adoption of digital payment modes among the huge merchant base in India was driven by the government's march towards achieving the digital economy and becoming a less-cash economy

By Sunil Khosla

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The Central Board of Direct Taxes (CBDT) made a budget announcement on 30th December 2019 under Section 269SU which notified that "From February 1, businesses with a turnover of ₹50 crores or more that failed to operationalize payment system through RuPay debit card or BHIM UPI, will be liable to pay penalty at the rate of ₹5,000 per day."

Further, the CBDT in its move informed that such businesses shall offer low-cost digital modes of payment which include BHIM UPI, UPI QR Code, Aadhaar Pay, NEFT, Debit Cards, RTGS etc, to their customers. It also announced that no charge or Merchant Discount Rates (MDR) shall be imposed on customers and merchants.
In its notice, CBDT set the deadline of 31 st January 2020 to make the amendments, providing enough time for businesses to install and operationalize the new payment system in order to start accepting payments through prescribed digital modes.

The move to promote the adoption of digital payment modes among the huge merchant base in India was driven by the government's march towards achieving the digital economy and becoming a less-cash economy. The government has been very proactive in making efforts in this direction.

What is the Merchant Discount Rate (MDR)?
MDR is the cost that a merchant pays to a bank for accepting payment through electronic modes such as debit card, credit card etc. But if neither the customer nor the merchant pays for the MDR bill, then who will bear the cost? Finance Minister in her budget speech had said that the Reserve Bank of India (RBI) and the banks will absorb these costs from savings that accrue on account of handling less cash as people move to electronic means of payment.

UPI Transactions Growing Exponentially
The UPI payments system was developed by the RBIbacked National Payments Corporation of India (NPCI), an umbrella organization for all retail payments in the country. The number of transactions via UPI was 1.2 times higher than the number of debit card transactions in 2018-19, according to the RBI annual report. According to the recently released data by NPCI, in February 2020 alone, UPI processed 1.32 billion transactions which is highest ever in a month. While most of the contribution comes from the B2C space, the move will increase usage of UPI and RuPay transactions in the B2B space as well.

Widespread Impact

The CBDT mandate has prompted even non-retail organizations to incorporate digital payment services which have led to a boost in digital payment adoption across untapped markets. Since the CBDT mandate came into effect, many organizations across various sectors have come forward to embrace digital payment modes. Many businesses that were previously dealing in cash only have started providing their customers with digital payment facilities. In fact, in order to comply with the mandate, many global giants have started offering Ongo digital payment services to their customers.

Fintech Continues to Grow

The growth story started with the demonetization and the CBDT move has further pushed Fintech towards the rise. The move has provided a great opportunity to banks and digital payment service providers to get hold of multiple big clients. With an increasing number of customers moving towards digital payment modes and more organizations adopting a service provider, the future of Fintech is bright. Such moves by Governments across the globe are widening the scope of growth for Fintech industry, even giving an opportunity to budding entrepreneurs.

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Sunil Khosla

Head Digital Business, India Transact Services Limited (ITSL)

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