GST notices based on UPI transaction: Traders on warpath, official calls action proper

Amid rising concerns among traders in Karnataka over the issuance of nearly 6,000 GST demand notices based on UPI transaction data, traders' bodies gave a strike call, while a top tax official termed the action to be within the framework of law.

Speaking to the PTI, Meera Suresh Pandit, Joint Commissioner of Commercial Taxes, has also clarified that notices are not final tax demands and the recipients have the right to respond with supporting documentation. If the reply is convincing or the goods and services are exempted under the GST Act, notices will be dropped, she added.

Reacting to the issue of notices sent to traders based on UPI transactions, a number of Traders Associations in Karnataka have given a call to the traders to boycott UPI transactions. They have also called for a strike on July 25.

Responding to the reports of a proposed traders' strike on July 25 and calls to revert to cash-only transactions, Pandit explained in detail the rationale behind the notices.

"When a person reaches the threshold limit of Rs 20 lakh for services or Rs 40 lakh for goods, it is mandatory for the person to get registered under the GST Act to take registration and declare his turnover," the officer told PTI.

"The registration empowers the trader to collect taxes from the consumers and pay it to the government. These taxes are meant for the government, but when the dealers collect them and fail to remit them, they are treated as unregistered persons, and we issue notices accordingly."

The department, she said, cannot individually identify every trader evading registration. Instead, the Services Analysis Wing at the department's head office used reliable sources such as UPI transaction data to flag potential defaulters.

"If a person has transacted over Rs 20 lakh for services or Rs 40 lakh for goods in a year through UPI, it indicates that they may be liable to register under GST," Pandit said, adding that notices were based only on preliminary data, not final determinations.

The officer said the department is not aware whether the turnover is entirely exempted, partially taxable, or fully taxable. That is why the notice includes a proposal to register and pay applicable taxes, interest, and penalties.

"If the turnover is completely from exempted goods or services like tuition fees, the registration is not required. If the reply is convincing, the notice will be dropped and proceedings will close with a nil demand," Pandit clarified.

She also addressed doubts prevailing among the trading circles.

"Some innocent traders are being carried away, hoping every notice will be withdrawn. Some are being misled. But if they want relief within legal provisions, I request them to come to the department. We will guide them as per the law," the Joint Commissioner said.

"Calling for a ' Bandh' will not serve the purpose. They may represent their concerns peacefully," she noted.

On concerns that UPI alone doesn't reveal the full turnover, Pandit said, "The UPI transaction is only one indicator. There could be other modes of payment like cash, card, or net banking. So, if they are not liable for registration, they must explain and support their claim through written replies or personal hearings."

The department, the officer said, is open to engagement and has made extensive efforts to educate traders.

"Prior to the rollout of GST in July 2017, we conducted door-to-door awareness programmes, workshops, and released educational videos," she said.

"We also have helplines now across offices, and traders are coming forward to seek guidance."

"Even if traders fail to respond to the first notice, we send three reminders and conduct a field visit if necessary. Final assessment happens only after considering their response and facts," she told PTI.

"We strictly adhere to the principles of natural justice and ensure every opportunity is given," she added.

"When you buy a plot, you go to the sub-registrar's office without being told. Likewise, traders should know applicable tax laws. Ignorance cannot be an excuse. The department is always there to guide," she said.

However, trade activist Sajjanraj Mehta raised concerns over the fairness of recent GST notices.

He stated that while the Commercial Taxes Department is legally within its powers to use such data, the lack of prior warning, context, and education has confused.

"Many small traders were unaware that their UPI inflows, often a mix of business and personal transactions, would be treated as undeclared turnover," Mehta told PTI.

"The fairness issue lies not in enforcement itself, but in the suddenness and lack of clarity," he added.

Mehta stressed that the department should differentiate between exempt and taxable goods before sending notices.

"Issuing notices without accounting for exempt goods like fruits, vegetables, or unbranded food items shows a lack of nuance," he said.

"A more tailored, data-informed approach could have avoided unnecessary panic".

Mehta acknowledged a growing trend among vendors in Bengaluru and Mysuru to shift away from UPI.

"There's visible hesitation, especially in markets and grocery stores. Some vendors are reverting to cash or asking customers to avoid UPI. However, urban areas with tech-savvy customers still show strong digital payment usage," he underlined.

According to him, traders are currently seeking clear guidelines on how UPI transactions are treated under GST, a mechanism to contest mismatches or clarify exemptions without immediate penalties and awareness programmes in local languages.