Under mounting scrutiny from the tax department, small traders and service providers across Karnataka are switching back to cash payments and planning a phased protest against what they describe as “unfair tax pressure” triggered by the use of digital payment platforms.
Under mounting scrutiny from the tax department, small traders and service providers across Karnataka are switching back to cash payments and planning a phased protest against what they describe as “unfair tax pressure” triggered by the use of digital payment platforms.
A flower vendor in Bengaluru, recently put up a sign reading “No UPI, Only Cash” at his stall. “Some of my regular customers are unhappy, and sales have gone down,” he said. “But I had no choice after receiving a GST notice. Many other vendors like me are also shocked.”
Auto drivers, too, are affected. Vinay (name changed), an autorickshaw driver, said he was issued a notice demanding GST dues of nearly ₹4.5 lakh. “Now many of us are asking customers for cash to avoid further problems,” he added.
Customers are feeling the impact. A college student, noted that at least three small vendors in her neighbourhood have stopped accepting UPI. “Even auto drivers now prefer cash. It’s inconvenient to carry change all the time,” she said.
‘Unfair pressure’
Against this backdrop, trade associations in the State have announced a protest in phases. Milk sales will be suspended on July 23, followed by a halt in gutka and cigarette sales on July 24. On July 25, vendors plan a complete shutdown of bakeries, condiment stores, and petty shops to protest what they call “unfair pressure” from the tax authorities.
In a bid to contain the growing discontent, the Commercial Taxes Department issued a press note on July 11 addressing concerns around the recent notices. It clarified that the notices were issued to businesses whose digital payment volumes appeared to exceed the prescribed turnover thresholds and reminded traders that GST is applicable on the value of supplies regardless of the payment method — be it cash, UPI, POS, or bank transfer.
The department stressed that GST liability arises only if the aggregate turnover — including both taxable and exempted goods and services — crosses the applicable threshold. It also reiterated that registered dealers are liable to pay tax only on taxable supplies and can avail of input tax credit to reduce their net tax burden. For small businesses, with a turnover below ₹1.5 crore, a composition scheme is available under which they can pay GST at a concessional rate of 1 per cent after registration.
‘Regularise status’
However, officials noted that the composition scheme is not applicable to those who operate without registration and urged traders to regularise their status. Traders have been advised to submit supporting documents at their local GST office to clarify their turnover, after which officials will apply the tax only to the taxable portion of their supplies.
According to the department, 98,915 taxpayers in the State are already registered under the composition scheme, and notices have been sent to fewer than 10 per cent of this base. The department said it is committed to ensuring that new registrations are processed smoothly and without inconvenience.
Officials also confirmed that they have observed a recent trend of traders halting UPI transactions in response to the notices. The department reiterated that UPI is only a mode of receiving consideration, and GST applies based on the value of supply, not the mode of payment. Action will be taken, it warned, to ensure compliance regardless of how payments are received.
Even though the department has urged traders not to panic, ground sentiment remains uneasy, with many vendors opting for caution. For now, the push towards formalisation through digital payments appears to have hit a speed bump as small businesses recalibrate their risk appetite in a more tightly-regulated environment.
