Why Traders Are Abandoning UPI Payments
In recent weeks, small traders in Karnataka—particularly in Bengaluru and Mysuru—have begun refusing UPI payments after receiving GST notices. The state’s commercial tax department analyzed UPI data from fiscal years 2022–25 to identify vendors possibly earning above the ₹40 lakh annual turnover cap without GST registration. The surprise notices triggered concerns among shopkeepers, hoteliers, auto drivers, and street vendors who weren’t aware UPI receipts could be counted as turnover 0.
Immediate Impact: Return to Cash
The backlash has been swift: vendors are putting up signs reading “No UPI, only cash,” with some reporting sales drops of up to 30%. Ms. Rekha, a flower vendor in Banashankari, Bengaluru, noted sharp declines after refusing digital payments 1. The shift is more pronounced in non-metro and rural areas, though digital-first zones are less affected 2.
State Clarifies GST Rules
Karnataka’s Commercial Tax Department clarified that GST applies to all taxable sales methods—not just UPI. The department assured that GST registration processes will be streamlined to ease compliance. They emphasized that avoiding UPI doesn’t exempt traders from their tax obligations 3.
Scale of the Enforcement Drive
Since July, notices have been issued to around 14,000 traders identified through UPI transaction data as exceeding GST thresholds (₹40 lakh for goods, ₹20 lakh for services). Karnataka currently has 10.3 lakh registered traders and aims to add approximately 1 lakh more, contributing to a ₹1.2 lakh crore revenue target—₹26,241 crore has already been collected 4.
Confusion and Calls for Reform
Many traders argue that UPI incomes include personal transfers or small unbranded goods exempt from GST, meaning tax assessments based solely on UPI are inaccurate 5. Trade bodies and activists are demanding clearer guidelines, better communication, and help centers, especially in local languages, to prevent hasty reversion to cash 6.
Long-Term Risks to Digital India
Experts warn that this trend may reverse years of progress in digitizing payments. When UPI becomes synonymous with tax scrutiny, trust can erode—leading to a resurgence in cash transactions. Activists stress the need to balance enforcement with education and support 7.
Trivia & Key Takeaways
- UPI processes over 1.8 billion transactions monthly, valued at over ₹24 lakh crore with ~40 crore users nationwide 8.
- GST applies to traders with annual goods turnover above ₹40 lakh or services above ₹20 lakh.
- Karnataka identified ~14,000 vendors via UPI data for non‑registration in 2022–25.
- Vendors face potential retroactive tax liabilities in the lakhs.
Final Thoughts
The UPI-based GST notice campaign highlights the tension between digital transparency and regulatory burden. As Karnataka seeks to boost revenue, reopening dialogue, simplifying registration, and targeted education are essential to avoid undermining Digital India’s momentum.
Source: Taxscan