GST on Cash Sales: Karnataka’s Clarification for Small Traders
The focus keyphrase “GST on cash sales” has caused confusion among small businesses in Karnataka, especially after a recent wave of GST notices linked to UPI transactions. But on July 17, 2025, the Karnataka Commercial Taxes Department issued a firm clarification: GST is based on taxable turnover, not the mode of payment.
Let’s simplify what this means for Indian taxpayers, especially small shopkeepers and service providers.
GST on Cash Sales: What the Law Says
As per Section 22 of the CGST Act, 2017, a business must register under GST if:
- Annual turnover exceeds ₹40 lakh (in case of goods), or
- Annual turnover exceeds ₹20 lakh (in case of services)
👉 Mode of payment — cash, UPI, card, cheque — is irrelevant.
Once your turnover crosses these thresholds, you are liable for GST registration even if every sale is in cash.
UPI vs. Cash: GST Treats Both the Same
In response to small traders protesting over GST notices for UPI receipts, the Karnataka department stated:
“GST is applicable on consideration received in any form. UPI is merely a mode of receipt.”
This means:
| Transaction Mode | GST Applicability |
|---|---|
| UPI | ✅ Yes |
| Cash | ✅ Yes |
| Card | ✅ Yes |
| NEFT/IMPS | ✅ Yes |
Avoiding digital payments won’t protect you from GST if your turnover crosses the threshold.
What If You Haven’t Registered Yet?
If your turnover crossed ₹40 lakh (goods) or ₹20 lakh (services) in any financial year:
- You must register under GST, even if all your income was in cash.
- If not registered, you are liable for tax, interest, and penalty from the date you became liable.
- Digital trail or no trail — you still owe tax if your business qualifies.
Composition Scheme: A Simpler Option (If You Qualify)
If your annual turnover is up to ₹1.5 crore, you can opt for the composition scheme:
- Flat tax: 1% for traders (0.5% SGST + 0.5% CGST)
- No need to maintain complex ITC records
- File quarterly statements and annual returns
But remember:
You can’t apply it retrospectively. If you received notices for pre-registration periods, the regular GST rates apply.
Government’s Stand: Don’t Panic, Just Respond
The Department’s statement also reassures traders:
- Officers have been instructed to verify documents fairly
- Notices have been sent to less than 10% of traders under composition
- Officials will help resolve queries
- Digital payments are not the issue — non-registration is
Expert Tip: Stop Avoiding UPI. Start Keeping Records.
Many traders are now refusing UPI payments, fearing GST. That’s counterproductive.
UPI records protect you, not harm you — they create a verifiable trail in case of scrutiny.
Focus on filing returns and staying compliant, rather than going fully offline.
Summary
GST on cash sales applies if turnover exceeds ₹40 lakh (goods) or ₹20 lakh (services), regardless of UPI or cash. Karnataka Commercial Taxes Dept clarified that digital payment mode doesn’t trigger GST — total taxable turnover does.
FAQs
1. Is GST applicable on cash sales only?
Yes, if your total taxable turnover exceeds the threshold, cash sales are also liable for GST.
2. Will stopping UPI help me avoid GST?
No. GST liability depends on total turnover, not the payment method.
3. What if I just crossed the threshold?
You must register for GST from the date you cross the limit. Delay can lead to penalties.
4. Can I switch to the composition scheme now?
Yes, if your turnover is under ₹1.5 crore — but it won’t apply to past periods for which notices are issued.
Final Word: Stay Compliant, Stay Safe
GST is here to stay. And it’s based on turnover — not how you receive money. If you’re confused about your liability or want help responding to notices, Efiletax can help you file your GST returns, opt for the right scheme, and stay fully compliant.