Bengaluru, once known as a city that was rapidly adopting digital payments, is now seeing many shopkeepers and street vendors refusing to accept UPI payments and preferring cash. The main reason for this change is the crackdown by the tax department, which has identified about 14,000 merchants based on UPI transactions who were operating without registration. Many of these have been issued notices for tax dues from the financial year 2021-22.
Many shopkeepers and hawkers in Bengaluru are now hesitant to accept payments through UPI due to fears of receiving notices from the tax department. Recently, the Commercial Tax Department identified about 14,000 such traders based on UPI transactions who were accepting digital payments without registration.
There was a time when almost every small and big trader in the city accepted UPI, be it a vegetable cart, a chaat cart, or small shops. But now boards like “Only cash, no UPI” are being seen everywhere.
This fear took root when the tax department analysed the data of digital transactions and found that many traders were transacting beyond the limit after which GST registration becomes mandatory. According to the rules, if the annual turnover exceeds Rs 40 lakh (for goods) or Rs 20 lakh (for services), then the business is required to be registered in GST.
According to media reports, many traders have been sent notices for pending taxes from the financial year 2021-22. A few have been asked to pay amounts into lakhs of rupees. This has created an atmosphere of fear, and many sellers have stopped accepting payments through UPI, as they worry that their digital records will expose them to further tax scrutiny.
Tax experts and legal experts believe that it is not right to consider UPI transactions alone as the complete proof of income. In a report by the Times of India, a former tax official said that digital payments should not be considered the ultimate basis of income.
This situation is especially difficult for small traders who fall in the unorganised sector, where personal and business transactions are done from the same bank account and there is little scope for profit.
The government’s strategy behind this action is to increase revenue, the Karnataka government has to achieve a tax collection target of Rs 1.2 lakh crore by 2025-26. Of this, more than Rs 52,000 crore is to be spent on social welfare schemes, and MLAs are demanding additional budget for infrastructure. In such a situation, the government is making efforts to increase the tax base.
In view of the growing resentment among traders and the decline in digital payments, the state government has launched an awareness campaign called ‘Know GST’. Its purpose is to give correct information about GST rules to traders and remove their fear. The first workshop of this campaign was held in Koramangala, Bengaluru earlier this week.
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