Bengaluru’s small vendors ditch UPI over GST fears
The rise of “No UPI, Only Cash” signs in Bengaluru isn’t just a tech hiccup — it’s a clear signal of a deeper issue: tax anxiety. Despite UPI’s unmatched success in India’s digital payment revolution, many small vendors in the IT capital are retreating from digital modes after receiving GST notices linked to online payment trails.
Why Bengaluru vendors are avoiding UPI
The issue came to light after Times of India (16 July 2025) reported a surge in small vendors refusing UPI payments. Here’s what’s driving the shift:
- GST registration notices were triggered by digital transaction data
- Small shopkeepers, tea stalls, and food vendors allegedly crossed the ₹40 lakh turnover limit
- Many were unaware that UPI payments are traceable, unlike unreported cash sales
- Some vendors reported being harassed by GST field officers after UPI trails were reviewed
Understanding the ₹40 lakh GST threshold
Under Section 22 of the CGST Act, 2017, any supplier of goods whose aggregate turnover exceeds ₹40 lakh in a financial year is liable for GST registration.
But what counts in turnover?
As per CBIC FAQs and Section 2(6) of the CGST Act, “aggregate turnover” includes all sales — cash, card, UPI, Paytm, PhonePe — across India, even if unregistered.
So, if a vendor earns:
| Mode of Sale | Annual Turnover (₹) |
|---|---|
| UPI payments | 22,00,000 |
| Cash sales | 19,00,000 |
| Total | 41,00,000 |
Even if only ₹22 lakh came via UPI, GST registration becomes mandatory due to the combined ₹41 lakh turnover.
Digital payments = Digital footprint
The moment a vendor receives over ₹20,000/month via UPI or QR codes, the banking trail becomes visible:
- GSTN can use data from NPCI, banks, and payment aggregators
- AI-backed compliance tools now match bank credits with GSTR-1 data
- Discrepancies often lead to show cause notices or suo moto assessments under Section 63
This has created panic among unregistered vendors who never intended to come under GST.
Expert insight: Ignorance isn’t a defence
According to tax consultant CA M. Srikanth:
“Digital trails make it easy for the department to reconstruct turnover. Vendors assuming cash can offset UPI disclosures are mistaken. Once your income is visible digitally, you’re in the system.”
Legal backing: Why GST officers issue notices
Here’s how the law supports enforcement:
- Section 63 (Best Judgement Assessment): Used when vendors don’t register but data proves otherwise
- Section 70: Officers can summon payment app data
- Rule 36A: Permits data correlation with income tax records
Even if vendors don’t issue GST invoices, digital receipts via UPI can lead to tax liability and penalties.
What small vendors can do
If you’re a small vendor receiving GST notices due to UPI transactions:
✅ Check your turnover for past 3 years — digital + cash
✅ Consult a tax professional before replying to any notice
✅ If turnover is below limit, submit proof (Section 22 exemption)
✅ If turnover exceeds limit, voluntarily register to avoid penalties
✅ Consider composition scheme if turnover < ₹1.5 crore for reduced compliance
Are cash sales legal?
Yes, cash sales are legal provided they are declared in income tax and/or GST filings.
But relying only on cash to avoid digital trails is risky:
- Cash deposits in banks above ₹10 lakh/year are tracked under Rule 114E of Income Tax Rules
- Section 269ST prohibits cash receipts above ₹2 lakh from one person in a day
The irony: UPI helped, now it haunts
India’s UPI system processed over 25.5 billion transactions (ACI Worldwide) and has even inspired global models (like Google’s proposal to the US Fed). But on-ground, in cities like Bengaluru, fear of compliance is killing adoption — not the technology.
This could slow India’s digital ambitions unless GST compliance is made simpler for nano businesses.
Summary
Small vendors in Bengaluru are refusing UPI due to GST notices. With digital trails triggering Section 22 registration, many fear harassment. Here’s how it works.
FAQs on “No UPI Only Cash” GST issues
Q1. Can UPI payments alone trigger GST registration?
Yes, if total turnover (UPI + cash) crosses ₹40 lakh.
Q2. What if my UPI receipts are below ₹40 lakh?
If your combined turnover is under ₹40 lakh, you’re exempt. But proper records are key.
Q3. Is cash safer than UPI for tax purposes?
Not always. Large cash deposits can also attract scrutiny from both GST and Income Tax departments.
Final thoughts
Digital payments are here to stay. But until micro vendors are educated about GST thresholds and options like the composition scheme, distrust will grow. Instead of fearing GST, get compliant the right way — without losing business.