Bengaluru, July 19 — Small businesses and vendors operating in the informal sector are under the spotlight as central and state GST authorities intensify scrutiny of cash and UPI-based transactions by unregistered entities. In response to a rising number of businesses receiving over ₹20 lakh per annum without GST registration, tax authorities have approached payment aggregators to track such transactions.
According to official sources, states like Karnataka have already begun issuing notices to vendors suspected of evading GST registration. Other states are expected to follow suit, as authorities gear up to tackle the massive scale of unregistered trade in India.
Why the Crackdown?
GST law mandates that any business or service provider with an annual turnover exceeding ₹20 lakh must register under the tax regime. However, many small vendors, freelancers, and service providers operating informally have continued to accept payments—especially via UPI and cash—without registering, leading to potential tax leakages.
To address this, central GST authorities have instructed field officers to:
- Identify high-risk sectors prone to informal transactions
- Map geographical hotspots of such activities
- Engage local trade associations through targeted outreach
- Encourage GST registration among small traders
Bengaluru Vendors Shun UPI Over GST Fear
The heightened scrutiny has had an immediate impact in Bengaluru, where a growing number of vendors are reportedly refusing UPI payments out of fear of triggering tax scrutiny. This shift has caused inconvenience to digitally dependent consumers and sparked concern in government circles.
In response, the Commercial Tax Department of Karnataka has issued a public clarification, urging small traders not to panic and to continue accepting digital payments. The department emphasized that digital payments offer transparency and safety, and that registration under GST is mandatory only if turnover exceeds the threshold limit.
Customer Experience Disrupted
The reluctance of vendors to accept UPI payments is already being felt by everyday consumers, especially in urban markets. What was once a seamless, cashless experience is now turning into a negotiation over payment modes, reflecting the confusion among small business owners.
What’s Next?
With the data from payment aggregators being reviewed and GST notices being sent out, the government’s message is clear: informal doesn’t mean invisible anymore. Authorities are aiming to expand the tax base while also nudging small businesses toward greater compliance.
However, experts warn that aggressive enforcement without adequate awareness or support measures could drive small vendors further underground or harm ease of doing business.
Bottom Line
The GST crackdown on unregistered UPI and cash-based businesses signals a new phase in India’s push for formalization. While it’s crucial for ensuring tax compliance, clear communication and support mechanisms for small traders will be key to ensuring a smooth transition.