GST Payment Crackdown: Why UPI Is Under Fire in India Now

Bengaluru Vendors Say “No UPI, Only Cash”: What’s Behind the GST Panic?

In a dramatic shift that’s shaking India’s digital payment landscape, small vendors across Bengaluru and other cities are rejecting UPI payments, citing fears of GST scrutiny. Once hailed as the poster child of India’s fintech revolution, UPI is now at the center of a controversy that’s driving traders back to cash.

The trigger? A wave of GST notices based on UPI transaction data, which has left thousands of unregistered vendors scrambling to avoid tax liabilities. This unfolding crisis is not just a Bengaluru story—it’s rapidly becoming a nationwide concern.

The Current Momentum: Why This Is Trending Right Now

• Google Trends data shows a sharp rise in searches for “GST on UPI payments,” with a 300% spike in the last 24 hours, especially from Karnataka, Maharashtra, and Uttar Pradesh.

• Karnataka’s Commercial Taxes Department confirmed that GST applies to all forms of payment—cash, UPI, POS, or bank transfers.

• Other states including Andhra Pradesh, Tamil Nadu, Gujarat, and Uttar Pradesh are now requesting UPI transaction data from payment aggregators.

• Over 14,000 traders in Karnataka received GST notices, prompting threats of a statewide shutdown on July 25.

• Vendors are removing QR codes and replacing them with signs that read “No UPI, only cash,” signaling a major shift in consumer behavior.

Understanding GST and UPI: A Quick Primer

• GST registration is mandatory for businesses with turnover exceeding ₹40 lakh for goods and ₹20 lakh for services.

• UPI is a payment method and does not trigger GST liability by itself. However, transaction data can reveal turnover levels that mandate GST registration.

• Traders below ₹1.5 crore turnover can opt for the composition scheme, paying a flat 1% GST, but only after registering.

Why This Is Trending Right Now

Real-Time Developments

• Karnataka’s tax department clarified that GST is based on turnover, not the payment method.

• Traders argue that UPI credits often include personal transfers, not just business income.

• Digital payment adoption is slowing, especially in rural and semi-urban areas.

• Political pressure is mounting, with opposition leaders demanding intervention from Chief Minister Siddaramaiah.

Economic Context

• Karnataka faces a ₹1.20 lakh crore GST collection target for FY 2025–26.

• Welfare schemes worth ₹52,000 crore are straining state finances.

• GST revenue rose 6.2% in June 2025, prompting authorities to push for broader compliance.

What Traders Are Saying

“I do a business of about ₹3,000 a day. I can’t accept UPI anymore—it’s too risky,” — Shankar, shopkeeper in Horamavu

“We had to bring in ₹25 lakh worth of coins to meet demand,” — KC Narayana Gowda, Mysuru Hotels Association

“This defeats the purpose of Digital India,” — Sunitha S, Bengaluru homemaker

Impact on Digital Payments

• Vendors report up to 30% decline in sales due to refusal of UPI.

• Shoppers are struggling to find stalls that accept digital payments.

• Fear of retrospective tax demands is eroding confidence in digital platforms.

FAQs

Q1: Is GST charged on UPI transactions?

No. GST is charged on the business turnover, not the payment method. UPI is just a mode of receiving money.

Q2: Why are vendors refusing UPI payments?

Because GST notices are being issued based on UPI transaction data, vendors fear tax liabilities—even if they’re below the threshold.

Q3: What should traders do if they receive a GST notice?

They should respond with documentation proving exempt goods or personal transfers. Authorities are instructed to assist in the process.

Q4: Can traders opt for a lower GST rate?

Yes. Under the composition scheme, traders with turnover below ₹1.5 crore can pay a flat 1% GST—but only after registration.

Q5: Is this happening only in Karnataka?

No. Other states like Andhra Pradesh, Tamil Nadu, and Gujarat are also requesting UPI data from aggregators.

Conclusion: A Crossroads for Digital India

India’s digital payment ecosystem is at a critical juncture. The GST crackdown on UPI transactions has exposed the fragile trust between small traders and tax authorities. While the government insists on fairness and compliance, the lack of clarity and communication has triggered panic.

If not addressed swiftly, this could reverse years of progress made under initiatives like Digital India. The solution lies in transparent guidelines, localized awareness campaigns, and a grievance redressal mechanism that protects both revenue and livelihoods.

As the July 25 trader shutdown looms, all eyes are on policymakers to restore confidence and ensure that digital doesn’t become a liability—but remains a lifeline.