The Income-tax Act, 2025 introduces a significant digital payment mandate for businesses with high turnover. Section 187 requires every person carrying on business or profession with total sales, turnover or gross receipts exceeding fifty crore rupees during the immediately preceding tax year to provide facility for accepting payment through prescribed electronic modes. This mandate has particular relevance for FMCG distributors who handle large volumes of cash transactions.
The Statutory Mandate Under Section 187
Section 187 of the Income-tax Act, 2025 provides that every person shall provide facility for accepting payment, through electronic modes as may be prescribed, in addition to other electronic modes, if any, being provided by him, where such person is carrying on business or profession and total sales, turnover or gross receipts in such business or profession exceeds fifty crore rupees during the immediately preceding tax year.
The section is drafted as a mandatory obligation, not merely a recommendation. The use of the word "shall" indicates that compliance is compulsory for eligible businesses. The obligation extends to providing facility for accepting payment through the prescribed electronic modes, in addition to any other electronic modes that the business may already be offering.
Prescribed Electronic Modes Under Rule 133
Rule 133 of the Income-tax Rules, 2026 prescribes the electronic modes that must be provided by eligible businesses. These include debit card powered by RuPay, Unified Payments Interface (UPI) (BHIM-UPI), Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code), and Tier-III: Full KYC Central Bank Digital Currency wallets, P-CBDC, Wholesale or Cross-border CBDC.
The inclusion of RuPay debit card is significant as it promotes indigenous payment systems. UPI and UPI QR Code are widely used in India and provide a cost-effective digital payment solution for businesses of all sizes. The inclusion of CBDC wallets represents a forward-looking approach to payment systems.
Who is Covered by the Mandate
The mandate applies to every person carrying on business or profession whose total sales, turnover or gross receipts exceeds fifty crore rupees during the immediately preceding tax year. This includes individuals, Hindu undivided families, partnership firms, companies, and any other person engaged in business or profession.
For FMCG distributors, the threshold is calculated based on the total sales, turnover or gross receipts of the business, not just the digital payments component. The threshold applies to the business as a whole, not per location or per product line. The obligation applies to the person carrying on the business, which may be an individual proprietor, partnership firm, or company.
The Obligation to Provide Facility
The obligation under Section 187 is to provide facility for accepting payment through the prescribed electronic modes. This does not require that all payments must be received through these modes, only that the facility must be available to customers who wish to use them. The facility must be provided in addition to other electronic modes, if any, being provided by the business.
The phrase "in addition to other electronic modes" indicates that the prescribed modes are supplementary to any existing electronic payment facilities. If a business already offers other electronic payment options, it must add the prescribed modes as well. The facility must be provided in a manner that is accessible and usable by customers.
Practical Implementation for FMCG Distributors
FMCG distributors should implement a systematic approach to compliance. The first step is to determine whether the turnover threshold is met based on the immediately preceding tax year. If the threshold is met, a readiness assessment should be conducted to evaluate current payment acceptance infrastructure and identify gaps.
Deployment of required infrastructure should include onboarding with payment service providers, setting up RuPay debit card acceptance infrastructure, implementing UPI and UPI QR code acceptance mechanisms, and enabling CBDC wallet acceptance capabilities. Integration with existing systems should ensure seamless payment acceptance.
Training of staff on the use of new payment modes and on handling digital payments is essential. Customer communication about the availability of digital payment options should be undertaken. Standard operating procedures for handling digital payments should be established.
Consequences of Non-Compliance
Section 452 provides that the Assessing Officer may impose on a person a penalty of ₹5,000 for every day of the duration of failure where he fails to provide a facility for accepting payments through the prescribed electronic modes of payment. The penalty is calculated on a daily basis for the duration of the failure.
This penal provision creates a significant financial risk for non-compliant businesses. For a large FMCG distributor, the penalty could accumulate to substantial amounts if the failure continues for an extended period. The penalty can be imposed by the Assessing Officer in addition to any other consequences that may apply.
Related Disallowance Provisions
Section 36(4) provides that where any payment or aggregate of payments made in a day to a person exceeds ₹10,000 and is not made through specified banking or online mode, the expenditure by way of such payments shall not be allowed as a deduction. This applies to payments made by the business, not just receipts. For FMCG distributors who make large cash payments for purchases, this disallowance provision creates additional compliance pressure.
Section 36(5) provides that where any deduction was made in any preceding tax year for a liability incurred for any expenditure and payment in respect of such liability is made during a subsequent tax year and if such payment exceeds ₹10,000 and is not made through specified banking or online mode, such payment shall be deemed to be the income under the head "Profits and gains of business or profession" in such subsequent tax year.
Other Electronic Modes of Payment
Rule 48 specifies the other electronic modes of payment for the purposes of various provisions including section 36(4), section 36(5), section 185, section 186, and section 188. These include credit card, debit card, net banking, IMPS (Immediate Payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer), BHIM (Bharat Interface for Money) Aadhaar Pay, and Tier-III: Full KYC Central Bank Digital Currency wallets, P-CBDC, Wholesale/Cross-border CBDC.
For FMCG distributors, these modes provide a comprehensive set of options for making payments to suppliers, employees, and other parties. The availability of these modes facilitates compliance with the digital payment requirements and reduces the risk of disallowance under section 36.
Integration with Other Tax Provisions
The digital payment mandate is part of a broader push towards digitization of the economy. Section 185 prohibits taking or accepting loans, deposits or specified sums except through prescribed electronic modes if the amount exceeds specified thresholds. Section 186 prohibits receiving amounts exceeding specified thresholds except through prescribed electronic modes. Section 188 prohibits repayment of loans, deposits or specified advances except through prescribed electronic modes.
For FMCG distributors, these provisions interact with the digital payment mandate to create a comprehensive framework for digital transactions. Compliance requires attention to receipts, payments, and the acceptance of payments from customers.
Best Practices for FMCG Distributors
FMCG distributors should conduct a comprehensive assessment of their current payment acceptance infrastructure to identify gaps relative to the prescribed electronic modes. A phased implementation plan should be developed for deploying the required payment acceptance mechanisms. Staff should be trained on the use of all prescribed electronic payment modes.
Internal controls for monitoring compliance with digital payment requirements should be established. Regular reviews of payment acceptance facilities should ensure they remain functional and accessible. Vendor agreements with payment service providers should be documented and maintained.
The digital payment infrastructure should be supported by appropriate technology infrastructure, including point-of-sale devices, QR code displays, and network connectivity. Customer communication about the availability of digital payment options should be clear and prominent. Regular testing of payment acceptance facilities should be conducted.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on digital payment mandate compliance, please consult qualified legal and tax professionals.
Need Expert Legal Guidance?
Navigating the digital payment mandate for high-turnover FMCG distributors requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive advisory services on tax compliance, digital payment implementation, and regulatory compliance. Contact us for expert guidance on your digital payment compliance matters.