The widespread adoption of digital payments in Bengaluru is facing a setback, as a growing number of shopkeepers and street vendors are refusing UPI payments, preferring cash instead. This shift is mainly due to actions by the tax department, which has been targeting merchants based on their UPI transactions. Around 14,000 merchants have been identified as operating without proper registration, and many have received notices for tax dues dating back to the 2021-22 financial year.
The main reason for the hesitation is the fear of tax notices. The Commercial Tax Department analyzed UPI transactions and identified approximately 14,000 traders who were accepting digital payments without being registered.
Once widely accepted, UPI is now being rejected by many vendors, with signs stating ‘Only cash, no UPI’ becoming increasingly common.
The tax department’s move came after it found that many traders were surpassing the GST registration limit. Businesses with annual turnovers exceeding Rs 40 lakh (goods) or Rs 20 lakh (services) must register for GST.
Media reports indicate that numerous traders have been issued notices for unpaid taxes, some running into lakhs of rupees, creating widespread fear and prompting many sellers to avoid UPI.
Tax and legal experts believe that relying solely on UPI transactions as proof of income is not sufficient. The Karnataka government aims to increase revenue, with a target of Rs 1.2 lakh crore in tax collection by 2025-26. Over Rs 52,000 crore of this will be spent on social welfare, and MLAs are requesting additional funds for infrastructure. The government is therefore focused on broadening the tax base.
To address the traders’ concerns, the state government has initiated a ‘Know GST’ awareness campaign. The first workshop took place in Koramangala, Bengaluru, aiming to educate traders about GST rules and address their anxieties.