The Direct Tax Code (DTC) 2025, building on the framework introduced by the Finance (No. 2) Act 2019, mandates that specified persons must provide facilities for accepting payments through prescribed electronic modes. This guide explains the mandatory digital payment requirements, the turnover threshold, the prescribed modes, and the consequences of non-compliance.
The Statutory Framework
Section 187 — Mandatory Digital Payment Facility
Under Section 187 of the DTC, every person carrying on business or profession 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.
Rationale
The provision is designed to:
- Promote digitalisation of payments in India
- Reduce cash transactions in the economy
- Enhance transparency in business transactions
- Facilitate better tax compliance
Prescribed Electronic Modes
Rule 133 — Mandatory Modes
Rule 133 of the Income-tax Rules, 2026 prescribes the following electronic modes of payment that must be provided:
- Debit Card powered by RuPay
- Unified Payments Interface (UPI) (BHIM-UPI)
- Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)
- Tier-III: Full KYC Central Bank Digital Currency wallets, P-CBDC, Wholesale or Cross-border CBDC
Additional Electronic Modes
Rule 48 of the Income-tax Rules, 2026 provides a comprehensive list of other electronic modes of payment recognised under the DTC, including:
- 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
Applicability
Turnover Test
The mandatory digital payment requirement applies to persons whose:
- Total sales in business exceeds ₹50 crore; or
- Turnover in business exceeds ₹50 crore; or
- Gross receipts in business exceeds ₹50 crore
during the immediately preceding tax year.
Persons Covered
The provision applies to:
- Individuals carrying on business
- Hindu Undivided Families carrying on business
- Firms
- Companies
- Association of Persons
- Body of Individuals
- Any other person carrying on business or profession
Exemptions
The Central Government may, by notification, exempt any class of persons from the requirement, subject to conditions.
Implementation Requirements
Infrastructure Setup
Specified persons must:
- Set up the infrastructure: Add a UPI QR code and RuPay POS machine at every counter or payment page
- Display payment options prominently: Display the availability of electronic payment modes
- Provide additional modes: Provide the prescribed electronic modes in addition to other electronic modes, if any, being provided
Manner of Providing Facility
The facility for accepting payments through the prescribed electronic modes must be provided:
- At all points of sale
- On all payment pages of websites
- Through all channels where payments are accepted
Consequences of Non-Compliance
Penalty Provisions
Section 452 of the DTC provides that the Assessing Officer may impose a penalty of ₹5,000 for every day of the duration of failure where a person fails to provide a facility for accepting payments through the prescribed electronic modes of payment.
Key Features of Penalty
- Daily Penalty: ₹5,000 per day of failure
- No Upper Cap: The penalty continues for the duration of the failure
- No Maximum Limit: Unlike some other penalties, there is no maximum cap
Other Consequences
Non-compliance may also result in:
- Disallowance of expenditure under Section 36(4) for cash payments exceeding specified limits
- Adverse observations in tax audits
- Reputational damage
Practical Compliance
For Businesses
Businesses should:
- Assess applicability: Determine if their turnover exceeds the ₹50 crore threshold
- Set up infrastructure: Install RuPay POS machines and UPI QR codes
- Train staff: Train staff on accepting digital payments
- Display prominently: Display payment options prominently
- Maintain records: Maintain records of digital payments accepted
For Professionals
Professionals should:
- Assess applicability: Determine if their gross receipts exceed the ₹50 crore threshold
- Set up infrastructure: Install necessary payment infrastructure
- Comply: Ensure compliance with the digital payment requirement
For E-Commerce Businesses
E-commerce businesses should:
- Integrate payment gateways: Integrate RuPay and UPI payment options
- Display payment options: Display all payment options prominently
- Ensure functionality: Ensure all payment options are functional
Interaction with Other Provisions
Section 186 — Mode of Undertaking Transactions
Section 186 prohibits receipt of amounts of ₹2,00,000 or more except through specified banking or online modes. The digital payment requirement under Section 187 is in addition to this restriction.
Section 36(4) — Disallowance of Cash Payments
Payments made in cash exceeding specified limits may be disallowed as deduction under Section 36(4) and (5). The digital payment requirement under Section 187 complements these provisions.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on mandatory digital payment compliance. Our direct tax experts help businesses understand their obligations, implement compliant payment infrastructure, and navigate the regulatory framework. We assist in assessing applicability, setting up payment systems, and responding to regulatory inquiries.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on digital payment compliance or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the mandatory digital payment framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Compliance Assessment: Evaluation of applicability and compliance requirements
- Infrastructure Setup: Guidance on setting up compliant payment infrastructure
- Penalty Defence: Representation in penalty proceedings
- Compliance Audits: Review of digital payment compliance
Contact us for expert legal guidance on your digital payment compliance matters.