Tax Department to Collect GST via Cash Payments or UPI
Karnataka’s commercial taxes department has reaffirmed that small vendors in Bengaluru are required to pay Goods and Services Tax (GST) at the applicable rates, regardless of whether transactions are conducted through digital platforms or cash. This clarification comes in response to reports indicating that some traders had ceased accepting UPI payments after receiving GST notices. The notices were reportedly issued to businesses whose annual UPI transactions exceeded the thresholds for mandatory GST registration.
Clarification on GST Payment Methods
The Karnataka commercial taxes department has made it clear that GST must be collected at the applicable rates for all transactions, whether they are made via Unified Payments Interface (UPI), cash, Point-of-Sale (PoS) machines, or bank transfers. This statement was issued following media reports that suggested some traders stopped accepting UPI payments due to concerns over GST compliance. The department emphasized that the mode of payment does not exempt vendors from their tax obligations.
Officials noted that notices were sent to businesses whose annual UPI transactions surpassed Rs 20 lakh for services or Rs 40 lakh for goods, which are the thresholds that necessitate GST registration. Some vendors have reported facing demands for payments amounting to lakhs of rupees. The department has urged those who received these notices to provide supporting documentation to the relevant authorities for verification. GST will only be levied on taxable turnover after excluding exempt goods and services.
Support for Traders and Compliance Education
Commissioner Vipul Bansal and additional commissioner Chandrashekhar Nayak have stated that tax officers are instructed to assist and educate traders on compliance requirements. They assured that the department is dedicated to facilitating smooth registration for businesses that are currently outside the GST framework. As of now, approximately 98,915 traders have registered under the composition scheme and are paying taxes accordingly. The department highlighted that the number of traders receiving notices is less than 10% of the total registered taxpayers under this scheme.
Traders can continue to pay 1% of their taxable turnover under the composition scheme. According to GST law, any individual or business with an annual turnover exceeding Rs 20 lakh for services or Rs 40 lakh for goods must register for GST, regardless of the payment method used. For those with an annual turnover below Rs 1.5 crore, there is an option to opt for the composition tax scheme after registering under GST, allowing them to pay State GST (SGST) and Central GST (CGST) at a reduced rate of 0.5% each.
Pressure on Revenue Collection Targets
The Karnataka tax officials are under increasing pressure to meet a revenue collection target of Rs 1.20 lakh crore for the financial year 2025–26. Chief Minister Siddaramaiah faces the challenge of financing welfare guarantees amounting to Rs 52,000 crore while also addressing growing demands from Congress MLAs for enhanced funding for infrastructure projects. This financial landscape adds urgency to the department’s efforts to ensure compliance among traders and maximize revenue collection.
The department has reiterated that the notices were issued only to businesses whose UPI transaction data since the 2021-22 fiscal year indicated turnover exceeding the threshold for mandatory registration. Such businesses are required to register under GST, declare their taxable turnover, and pay taxes at the applicable rates. This proactive approach aims to ensure that all businesses contribute fairly to the state’s revenue while also supporting those in need of guidance on compliance.
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