The Karnataka Commercial Tax Department’s decision to issue demand notices to traders over evasion of GST despite having an annual turnover of more than Rs 40 lakh via UPI payments has made small traders and shopkeepers wary of accepting digital payments, with some even removing UPI QR code stickers from their establishments in Bengaluru following the crackdown.
"Early morning shocker!! Laundry guy called me to tell me that he no longer accepts UPI payments... He will only accept cash..." wrote Dipu Nair on X.
“We have identified 14,000 cases so far. Notices are being issued to those with UPI receipts above Rs 40 lakh. Field officers are verifying how many are registered and compliant, Vipul Bansal, Commissioner of Commercial Taxes in Karnataka told Moneycontrol.
The commercial tax department has obtained data from UPI service providers on payments received by traders between FY 2021–22 and 2024–25.
Moneycontrol had on July 11 reported that Karnataka Commercial Tax Department had issued notices to traders who have evaded GST despite earning over Rs 40 lakh annually through UPI payments.
However, Bansal has added that there is no need to panic. “Right now, only notices have been sent. Let people come forward and explain. Depending on their situation, we will decide. If someone deals only in exempt goods or is under the composition scheme, the tax implication is minimal.”
The UPI QR codes have become a very popular payment method among shopkeepers and are being used for most small-value transactions in lieu of cash, as Covid and the lack of change with merchants have changed the customer behaviour over the last four to five years, along with rewards and cashbacks.
While some merchants might have removed QR codes and asked customers to pay in cash, the behaviour change is probably driven by customers.
“The UPI revolution was driven by consumers, not traders. If one trader refuses UPI, another will accept it — because the demand comes from the customer,” Bansal said.
He added that about one lakh dealers in Karnataka are already using the composition scheme and paying just one percent GST. “It is only fair to ensure others also follow the law.. The law must be implemented - not selectively ignored,” Bansal added.
Karnataka, which accounted for 7.73% of India’s total UPI transactions in May, ranked second only to Maharashtra (13.19%).
One of the shopkeepers, Sudhakar Sheenappa Shetty from North Bengaluru - who received the GST notice - said that he was speaking with other shop owners to take up the matter with the government.
“We continue to allow UPI payments. Customers want UPI. We will see how this can be worked out,” Shetty told Moneycontrol over the phone.
Meanwhile, some people on social media welcomed the government's move. “People making Rs 50 lakhs worth of transactions aren't small or poor vendors. It is Rs 50 lakh plus only from online payments. We wouldn't even know if they have 2 QR codes and if it is 2 accounts with Rs 50 lakhs. This had to happen. I am happy the GST department has finally woken up. #UPI payment,” an X handle said.
However, some customers are worried that if the trend continues, this will put them through the hardship of paying in cash, as UPI is more convenient. Many said that they went to ATMs for the first time in a few years to withdraw cash.
Another X user Shivaraj Kumar wrote on X, “The GST department is issuing notices to small vendors for tax payment based on UPI transactions. Already, I am seeing a trend in vendors asking for cash instead. This could be a big hurdle for UPI henceforth.. just beginning.”
In 2023, officials found 30 UPI QR codes and transactions worth Rs 1.47 crore at a popular biryani outlet in Hoskote near Bengaluru.
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