Bengaluru UPI panic explained: Why small traders are saying ‘no to QR, yes to cash’

Bengaluru vendors are increasingly refusing UPI payments due to fears of tax demands after the Commercial Taxes Department identified unregistered traders.

In Bengaluru, UPI payments had become ubiquitous across sectors, from local vendors and roadside stalls to small retail businesses. But now, signs reading 'No UPI, Only Cash' are appearing across roadside stalls, food carts, and local stores.

Amid growing backlash and declining digital transactions, the state government launched the ‘Know GST’ campaign. (MINT)

The reason? A growing fear of steep tax demands triggered by the very digital transactions that once symbolised progress.

What sparked the panic?

The panic began after Karnataka’s Commercial Taxes Department used UPI transaction data to identify 14,000 unregistered traders who had allegedly received digital payments beyond the threshold that mandates Goods and Services Tax (GST) registration.

Under the law, businesses must register for GST if their annual turnover exceeds ₹40 lakh for goods or ₹20 lakh for services. According to reports, many of these traders were issued notices citing tax arrears dating as far back as FY 2021–22, with some facing demands of several lakhs of rupees.

The backlash was immediate. Street vendors began refusing UPI payments, fearing that their digital trail could lead to further scrutiny or massive retrospective dues.

According to multiple reports, legal experts and tax professionals argue that relying solely on UPI transactions to determine a trader's turnover is flawed. A former Karnataka tax official, quoted in the Times of India report, warned against treating digital credits as conclusive proof of income.

“Authorities can’t simply convert UPI credits into turnover figures, they must support it with clear, corroborative evidence,” the official said.

This is particularly crucial for informal vendors, many of whom have overlapping personal and business transactions in the same account, or operate on slim profit margins.

Behind this aggressive enforcement lies a larger goal: Karnataka’s tax department is under pressure to meet a ₹1.2 lakh crore revenue target by 2025–26. With over ₹52,000 crore allocated for welfare schemes, and legislators demanding more for infrastructure, the government is searching for ways to widen its tax base.

What’s the Karnataka government going now?

Amid growing backlash and declining digital transactions, the state government launched the ‘Know GST’ campaign, an outreach initiative to create awareness about GST rules and calm trader fears. The first workshop was held in Koramangala, Bengaluru, earlier this week.

(With PTI inputs)