GST Evasion Notices in Karnataka: A Wake-Up Call for UPI Payments
Karnataka’s GST wing has issued over 1,900 evasion notices in just one year — and a big chunk targets small businesses accepting UPI without proper GST reporting. This surge is making many shopkeepers go back to cash-only transactions.
Focus keyphrase: GST evasion notices
Let’s break down why this is happening, the legal risks, and what every business should watch out for.
What’s behind the GST evasion crackdown in Karnataka?
According to a report by the Karnataka Commercial Taxes Department (June 2025), GST officers flagged over ₹600 crore in suspected tax evasion across retail, textiles, hospitality, and services.
Common reasons cited:
- Mismatch in GSTR-3B vs UPI sales data
- Non-registration despite crossing threshold
- Under-reporting of digital payments (UPI, GPay, PhonePe)
- Cash–digital income mismatch during audit or inspection
The digital footprint left by UPI payments has made it easier for tax officials to detect non-compliance.
Why are shopkeepers refusing UPI now?
Many shopkeepers in Bengaluru, Mysuru, and Mangaluru are refusing QR-based payments fearing:
- GST registration trigger after exceeding ₹20L/₹40L turnover
- Scrutiny based on UPI settlement reports from NPCI/PSPs
- Possible backdated tax demand and penalties under CGST Act Section 73
Legal Basis for GST Notices on UPI Sales
Here’s how GST law applies:
| Provision | Legal Reference | Impact |
|---|---|---|
| Compulsory Registration | Sec 22 of CGST Act | If aggregate turnover exceeds ₹20L (services) or ₹40L (goods), registration is mandatory |
| Tax Evasion & Penalty | Sec 122 | ₹10,000 or tax evaded (whichever is higher) |
| Data Scrutiny | Rule 36 & Sec 61 | Mismatch in sales can trigger show-cause notices |
| Arrest & Prosecution | Sec 132 | For willful suppression of turnover above ₹5 crore |
How GST officers detect UPI-linked evasion
CBIC and State GST departments are now using data from:
- NPCI and UPI aggregators
- Bank settlement statements
- GSTR-2A/2B mismatch signals
- Invoice-less payments to wallets
This digital data gets compared with filed GST returns. If there’s a gap, you may receive a summons (Sec 70) or a notice under Rule 142(1A).
Expert View: UPI is not tax-free
“Just because it’s digital doesn’t make it clean. If you’re not declaring UPI income, you’re leaving a trail that GST officers can easily follow.”
— CA Abhishek R, Bengaluru
Many small businesses believe that UPI sales under ₹20L can go untracked. But regular UPI volumes often breach threshold without realising, especially during festival or sale seasons.
How to avoid GST trouble if using UPI
If you’re a small trader or MSME accepting digital payments:
- Track your total turnover monthly (cash + UPI + cards)
- Register for GST if threshold is crossed
- File proper returns (GSTR-1, GSTR-3B) even if nil
- Avoid cash-actual mismatches in books vs reality
- Issue proper tax invoices even for small UPI payments
Tip: Use free Efiletax turnover tracker to monitor threshold breaches and auto-alert you for registration.
Should the government rethink small trader policies?
Yes. Experts have suggested:
- Raising threshold for UPI-only businesses to ₹50 lakh
- Simplified GST compliance for digital MSMEs
- Quarterly self-declaration schemes to reduce fear of notices
Till then, evasion notices will continue — and honest digital sellers may suffer.
Summary
Karnataka’s GST evasion notices target shopkeepers using UPI without proper reporting. Learn why digital payments aren’t tax-exempt and how to stay GST-compliant.
FAQs
1. I’m under ₹20 lakh turnover. Can I accept UPI without GST?
Yes, but track your total receipts. If you cross ₹20L (services) or ₹40L (goods), GST registration becomes mandatory.
2. Will UPI sales automatically trigger GST notices?
Not always. But if not declared in returns, they create mismatch and raise red flags.
3. Is refusing UPI legal?
There’s no legal bar on accepting only cash, but it may hurt your business. Better to stay compliant than avoid digital.
Final Word
Digital is the future — but not at the cost of compliance. Karnataka’s GST evasion notices are a clear reminder that UPI is not outside the tax net.
Want to avoid notices and stay compliant?
👉 Switch to Efiletax for GST registration, return filing, and UPI-linked reconciliation.