Bengaluru, July 22, 2025 – Small vendors across Karnataka are making a surprising shift back to cash-only transactions, abandoning Unified Payments Interface (UPI) payments due to hefty Goods and Services Tax (GST) notices. This trend, driven by fear of tax scrutiny, is raising concerns about the future of digital payments in India’s tech capital.
Why Are Vendors Ditching UPI?
The Karnataka Commercial Taxes Department has issued notices to around 14,000 unregistered traders whose UPI transactions from 2021-22 to 2024-25 exceeded the GST registration thresholds of ₹40 lakh for goods or ₹20 lakh for services. These notices, some demanding tax payments in lakhs, have sparked panic among small shopkeepers, street vendors, and micro-entrepreneurs. Fearing harassment and potential eviction, many are removing UPI QR codes and displaying “No UPI, Only Cash” signs at their shops.
Shankar, a roadside shop owner in Horamavu, Bengaluru, told The Economic Times, “I make about ₹3,000 a day and survive on the small profit I earn. I can’t accept payment by UPI anymore.” Vendors like Shankar worry that digital transactions leave a trail that could lead to overwhelming tax liabilities.
GST Rules and the Digital Dilemma
Under GST regulations, businesses with an annual turnover above ₹40 lakh (goods) or ₹20 lakh (services) must register and pay taxes. The Karnataka tax department has used UPI transaction data to identify non-compliant businesses, assuming digital receipts reflect total turnover. However, critics argue this approach is flawed. HD Arun Kumar, a former additional commissioner of commercial taxes, stated, “GST authorities cannot simply quote random figures as turnover. The burden of proof is on officers.”
Some vendors report that UPI credits include personal transfers or informal loans, not just business income, leading to inflated turnover estimates. Despite clarifications from officials that traders can explain their situation or opt for the GST Composition Scheme (paying 1% tax), many remain wary.
Impact on Bengaluru’s Digital Economy
Bengaluru, a hub for digital innovation, accounted for 7.73% of India’s UPI transactions in May 2025, second only to Maharashtra. The shift to cash-only payments threatens to reverse years of progress in digital adoption, driven by initiatives like Digital India. Customers, accustomed to UPI’s convenience, are frustrated, with some even boycotting cash-only shops. A netizen on X posted, “If you don’t show UPI, we won’t shop at your place.”
The Karnataka government has launched the “Know GST” campaign to address these concerns, urging traders not to abandon UPI. Vipul Bansal, Commissioner of Commercial Taxes, clarified, “GST applies to all payments, whether cash or UPI. Notices are only to ensure compliance.” Yet, with a revenue target of ₹1.20 lakh crore for 2025-26, tax officials are under pressure to enforce compliance, and other states like Andhra Pradesh, Tamil Nadu, Gujarat, and Uttar Pradesh are following suit.
What’s Next for Small Vendors?
Trade bodies and vendors are pushing back. The Mysuru Hotels Association and Mysuru Chamber of Commerce have called for clearer guidelines and awareness programs in local languages. Some traders are planning a statewide shutdown from July 23-25 to protest retrospective notices.
Chartered accountant Sreenivasan Ramakrishnan warned, “Bengaluru may be a test case. If GST authorities succeed in tapping unregistered vendors, other states will follow.” This could reshape India’s digital payment landscape, as small businesses weigh the risks of digital transactions against tax compliance.
Conclusion
The shift from UPI to cash in Karnataka highlights a growing tension between digital adoption and regulatory enforcement. While the government aims to boost tax revenue, small vendors feel caught in a compliance trap. Will this trend spread nationwide, or can awareness campaigns restore trust in UPI? Share your thoughts below!
Keywords: Karnataka UPI, GST notices, cash-only transactions, Bengaluru vendors, digital payments, GST compliance, small businesses, tax scrutiny
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