GST evasion on UPI over ₹40 lakh What Karnataka traders must know
If your UPI earnings cross ₹40 lakh annually, ignoring GST compliance could land you in trouble. The Karnataka Commercial Taxes Department has launched a targeted drive against traders — especially small retail and service businesses — who are collecting digital payments but not registering under GST or filing returns.
This marks a serious shift: digital trail = tax trail.
Why UPI income is now on the radar
With UPI transactions leaving clear digital footprints, tax departments are increasingly using data analytics to match GST filings with actual receipts. Karnataka CTD has flagged many such cases where:
- Annual UPI income exceeds ₹40 lakh (GST registration threshold for goods), or ₹20 lakh (for services)
- Businesses are not registered under GST despite crossing limits
- No GST returns are being filed
- No tax invoices or e-invoicing is done despite digital receipts
Legal basis:
As per Section 22 of the CGST Act, 2017:
- Every supplier is liable to register under GST if aggregate turnover exceeds ₹40 lakh for goods (₹20 lakh for services, ₹10 lakh in some states)
- UPI and bank credits do count towards “aggregate turnover”
Who’s being targeted in Karnataka?
The drive is focused on:
- Garment traders, mobile shops, kirana stores, roadside eateries
- Professionals like tutors, beauticians, home repair workers
- Online resellers and social media businesses
- Any unregistered business receiving large UPI payments
The department is leveraging data from:
- NPCI (UPI data)
- GSTN portal (return filings)
- Income Tax (AIS/26AS)
They’re issuing notices under Section 63 (Best Judgement Assessment) and conducting spot inspections.
What should traders do if earning via UPI?
Step 1: Check turnover
Add all receipts:
- UPI
- Bank credits
- Cash sales
- Online platforms
If your aggregate turnover exceeds ₹40 lakh (goods) or ₹20 lakh (services), GST registration is mandatory.
Step 2: Register on GST portal
Apply under Section 22 using PAN and Aadhaar. You can also opt for composition scheme if turnover < ₹1.5 crore.
Step 3: Start filing GST returns
- GSTR-1 (sales) and GSTR-3B (summary with tax payment) monthly/quarterly
- E-invoice if turnover > ₹5 crore
Step 4: Issue GST invoices
- Mention GSTIN, HSN, tax rate
- UPI receipts = taxable supply
GST on UPI income: Key clarifications
| Question | Answer |
|---|---|
| Is UPI income taxable? | Yes, if from business/profession and exceeds threshold |
| Is GST applicable on tuition fees via UPI? | Yes, unless exempt (e.g., school education) |
| Is composition scheme allowed for UPI earners? | Yes, if turnover < ₹1.5 crore and conditions met |
| What if I ignore the GST notice? | Best judgement assessment under Section 63 + penalties |
Expert Tip: Don’t rely on “cash business” excuse
“UPI and QR code payments are fully traceable. If you’re earning digitally, your GST obligations are visible. Non-compliance isn’t ignorance — it’s risk.”
— Tax Consultant, Bengaluru
Legal backing: Notices under Section 63
When an unregistered business is found making taxable supplies without GST compliance, the officer can assess the tax dues under Section 63 of CGST Act (best judgment basis) — no prior return or registration required.
If found liable:
- Demand notice + interest under Section 50
- Penalty under Section 122 (min ₹10,000 or tax amount)
Practical checklist for UPI earners
✅ Track monthly turnover from UPI and other channels
✅ Register under GST if limits crossed
✅ File returns even if nil sales in a month
✅ Issue GST invoices properly
✅ Maintain digital records for 6 years
Conclusion: Don’t let UPI success become GST trouble
Just because your business is small doesn’t mean it’s invisible. UPI makes every rupee traceable. If you’re crossing the threshold and not registering under GST, the tax department can — and will — find you.
Let Efiletax help you register, file, and stay compliant — before the notice arrives.
FAQ
Q1. Is there a GST audit for UPI income?
Not by default, but data-matching triggers investigation or notice.
Q2. Can I apply for GST composition scheme if I earn via UPI?
Yes, subject to eligibility (goods: turnover < ₹1.5 crore; no inter-state supply).
Q3. Will the tax department track UPI income even without PAN?
UPI is linked to bank accounts, which are KYC’d with PAN/Aadhaar. Traceability is high.
Summary
Karnataka GST officials are cracking down on traders earning over ₹40 lakh annually via UPI but skipping GST registration. UPI income counts towards turnover under GST law. Stay compliant — register, file returns, and avoid notices under Section 63.