A rising number of vendors in Bengaluru and Mysuru have started refusing Unified Payments Interface (UPI) payments, triggered by surprise Goods and Services Tax (GST) notices. These notices, confirmed by the Karnataka GST Department on 12 July 2025, were based on digital transaction data, where total UPI inflows were treated as business turnover—even when traders were dealing in exempt goods or receiving personal transfers.
Tax officials analysed UPI (Unified Payments Interface) records from 2022 to 2025 and flagged businesses with over ₹40 lakh in digital inflows. Notices were sent—even to those not registered under GST—causing widespread confusion and panic.
Vendors selling GST-free goods like fruits or unbranded items were still sent notices. Many claim even personal or informal UPI transfers were counted as business income, sparking confusion and distrust among small traders.
Worried about penalties, GST audits, and losing their shops, many small traders are ditching UPI. In markets across Karnataka, shops now put up signs like “No UPI, only cash” to avoid scrutiny.
Government officials clarified that (GST) liability depends on a business’s total annual turnover—not on whether payments are made via Unified Payments Interface (UPI), cash, or card. Vendors must register for GST if their total income crosses ₹40 lakh in most states. However, in special category states—Arunachal Pradesh, Manipur, Sikkim, Tripura, and Uttarakhand—the threshold is ₹20 lakh. Simply avoiding digital payments won’t shield vendors from tax obligations if they meet these limits.
As more small vendors stop using UPI and return to cash, India’s progress in building a digital and transparent economy may take a hit. With fewer digital transactions, it becomes harder for authorities to track business activity and collect taxes fairly. This shift also reduces convenience for customers and may push many small businesses further into the informal sector, making them harder to support or regulate.
The government has responded with measures like simplified GST registration, instalment plans for tax dues, and individual case reviews. However, many vendors still feel overwhelmed and say they need clearer help to comply confidently.
According to tax consultants and legal experts. authorities must first verify if UPI inflows reflect actual business turnover before sending GST notices. They also call for clearer GST communication in local languages to avoid panic and confusion.
