The QR code stickers that made digital payments so easy have been replaced by printouts or handwritten notes that say, "No UPI, only cash" in many of Bengaluru's neighbourhood stores.

In a city that has consistently topped the charts for digital payments, small vendors who previously preferred UPI payments are increasingly requesting cash from customers. Such vendors said they have either abandoned the UPI or reduced their use of payment apps after receiving notices demanding goods and services tax.

Key Highlights

• Bengaluru traders revert to cash after receiving GST notices, fearing digital UPI data leads to tax scrutiny. 
• Experts warn cash resurgence among small merchants may signal deeper distrust in digital payment tracking systems.

"I run a Rs 3,000 per day business and make a small profit to support myself. I can't accept UPI payments anymore," said Shankar, a shopkeeper in Horamavu, Bengaluru.

Thousands of unregistered businessmen, ranging from those running neighborhood shops to those selling short eats, condiments, street foods, tea, and biscuits from push carts, have received notices demanding GST, with some cases totaling lakhs of rupees, according to vendors, lawyers, and accountants familiar with the situation.

Advocate Vinay K Sreenivasa, joint secretary of the Federation of Bengaluru Street Vendors Associations, stated that many vendors prefer cash to UPI for fear of being harassed by GST officials or being evicted by civic authorities citing tax notices.

Businesses that supply goods must register for GST and pay taxes if their annual revenue exceeds Rs 40 lakh. In terms of services, the threshold is Rs 20 lakh.

According to a statement from the commercial taxes department, notices have only been issued in cases where UPI transaction data for years beginning 2021-22 showed a turnover that required GST registration and tax payment. All such businessmen must register for GST, disclose their taxable turnover, and remit taxes, it added.

However, HD Arun Kumar, a former additional commissioner of commercial taxes in Karnataka, stated that the GST authorities cannot use a random number to calculate turnover and demand taxes. "Under the GST laws, officers bear the burden of proof. They must establish it before issuing a tax demand, unlike in money laundering cases," he said.

S Suresh Kumar, an opposition BJP MLA, said he would write to Chief Minister Siddaramaiah to seek his intervention in the matter.

According to a former GST field official's personal experience, the total amount received through a payment app and captured in the GST notice may not reflect business income. Some of these would be informal business loans and transfers from family and friends, he explained.

"Bengaluru could emerge as a test case. "If the GST authorities can generate a significant amount of revenue by tapping unregistered vendors, other states will follow suit because every state is desperate for funds," said Bengaluru-based chartered accountant Sreenivasan Ramakrishnan of Sreeni & Associates. "Officials have zeroed in on chat vendors with a high volume of business in Mumbai." It's only a matter of time, given the enormous potential tax base," he said.

Also Read: IMF: UPI Drives India to World's Fastest Payment System

Karnataka's tax officials are looking into all possible sources to meet the CM's Rs 1.20 lakh crore target for 2025-26. Siddaramaiah is walking a tightrope, torn between the obligation to spend Rs 52,000 crore on welfare guarantee programmes and Congress MLAs' demands for funds to build roads and bridges.