Bengaluru, once a leading adopter of digital payments, is witnessing a resurgence of cash transactions as shopkeepers and street vendors increasingly refuse UPI. This shift is primarily attributed to the tax department’s scrutiny of merchants who were operating without proper registration based on their UPI transactions. Approximately 14,000 merchants have received notices regarding tax dues, primarily from the fiscal year 2021-22.
Merchants in Bengaluru are hesitant to use UPI due to fear of receiving tax notices. The Commercial Tax Department identified about 14,000 traders based on their UPI transactions who were accepting digital payments without registration. Many businesses are now displaying signs like ‘Only cash, no UPI’.
This situation arose when the tax department analyzed digital transaction data and found that many traders were exceeding the GST registration threshold. Businesses with an annual turnover exceeding Rs 40 lakh (for goods) or Rs 20 lakh (for services) are required to register for GST.
Notices for pending taxes, some amounting to lakhs of rupees, have been sent to many traders from the financial year 2021-22. This has created an atmosphere of fear, causing sellers to avoid UPI, as they are concerned about tax scrutiny based on their digital records.
Tax and legal experts suggest that solely relying on UPI transactions is not a comprehensive measure of income. The government aims to boost revenue, with the Karnataka government targeting Rs 1.2 lakh crore in tax collection by 2025-26. Over Rs 52,000 crore of this will be allocated to social welfare programs, with MLAs requesting extra funds for infrastructure. The government is thus trying to expand its tax base.
In response to trader concerns and declining digital payments, the state government has launched an awareness campaign called ‘Know GST’ to educate traders and alleviate their fears. The first workshop of this campaign was held earlier this week in Koramangala, Bengaluru.