Explained of Karnataka GST crackdown: What UPI really reveals and why cash - only won't help
Going cash-only won't save Karnataka traders from the GST net - not when digital payment data already reveals the scale of their business,
In a sweeping enforcement drive, Karnataka's Commercial Taxes Department has issued a wave of GST demand notices to small traders across the state, triggering panic - and a widespread shift to "cash-only" operations. But officials have now made it clear: the mode of payment doesn't matter - it's your total turnover that counts
Caught off- guard, many vendors in Bengaluru and beyond - including tea stalls, bakeries, and market shops - began refusing UPI payment altogether, fearing tax liabilities running into lakhs or crores. Sign reading "NO UPI" have popped up across city markets,
Trader associations have called for a statewide bandh on July 25, 2025, protesting what they allege are excessive and arbitrary tax demands.
Official have been instructed to guide traders, particularly those dealing in exempt items like fruits or bread, and to ensure only legitimate tax is demanded. Still failure to respond to notices can trigger penalties or recovery actions.
But tax officers warn that this approach is flawed and ineffective. Going cash - only doesn't grant exemption. All income, whether digital or cash, must be included when calculating GST ELIGIBILITY.
"The traders are advised, not to get confused and to submit explanation with relevant documents after visiting the office from where they have received notice and the officers would verify them and suitably inform the relevant provisions of the GST and also their remedies ad would levy tax at the applicable rates only on the taxable turnover after excluding the tax exempted goods and services.
In future, it would not be difficult for the registered persons to pay tax at 1% under the composition scheme. The number of persons to whom notices or intimations are issued recently are less than 10% of the already registered taxpayers under composition scheme. So the majority of such dealers are already paying taxes as per law"
When is a trader required to register for GST?
" As per Section 22 of the Goods and Services Tax Act, 2017, every person who carries on a business activity and receives payment by way of cash. PI, POS Machine, Bank payment or by any other means exceeding Rs 40 lakh annually in case of a person dealing only in goods and exceeding Rs 20 lakh annually in case of persons dealing in services have to obtain GST REGISTRATION MANDATORILY.
The aggregate turnover, in case of a person who has obtained GST registration under the regular scheme, would include the taxable and tax exempted goods and services. If the person ha obtained registration under the regular scheme, the tax is leviable only on the taxable goods and taxable services only.
In continuation, any person whose annual turnover is less than Rs. 1.5 crore can opt for composition tax scheme after obtaining GST registration and can pay SGST AT 0.5% But, the composition tax scheme is not applicable on the turnover made without obtaining registration."
Routine enquiry
The GST authorities are afforded with wide powers to call for information from any person, required to undertake enquiry in relation to any contravention.
They also have the power to summon any person to furnish any document or produce any evidence, which they may require to undertake their enquiry.
The press release issued by the Karnataka Commercial Tax Department does not provide any clarity on this.it appears that the payment data of traders may have been collected from various payment aggregators (UPI services).
While there is a procedural requirement for the officers to issue a notice to the person from whom information is sought, after obtaining written approval from the Commissioner, there is uncertainty on whether this process has been followed in these recent instances.
