UPI payments face a roadblock in Bengaluru as traders rebel against GST notices

In a surprising turn for India’s digital economy, several small traders and vendors across Bengaluru have begun rejecting UPI payments, a mode that has become synonymous with everyday transactions across the country. Signs reading "No UPI Payments, Only Cash" are now visible outside many local shops, tea stalls, and roadside vendors in the city’s busy neighborhoods.

Also Read:Govt uses UPI data to target unregistered traders, aims to boost GST revenue

The move comes in the wake of the Karnataka Commercial Taxes Department sending GST notices to over 14,000 traders. These businesses were flagged for conducting UPI transactions exceeding Rs 40 lakh annually, the threshold that mandates GST registration for the sale of goods. In the first round, 5,500 traders have already received official notices.

Under current rules, any trader who sells goods worth over Rs 40 lakh or services worth over Rs 20 lakh per year must register under Goods and Services Tax (GST). Authorities used UPI transaction data to identify traders evading GST compliance despite high digital sales volumes. This has sparked panic among small business owners, many of whom were unaware that UPI payments would be scrutinized for tax purposes.

Bengaluru, often hailed as India’s Silicon Valley and the second-largest city for digital payments, is now witnessing a backlash against the very platforms that fueled its digital transformation. Traders have begun removing QR codes, hiding UPI stickers, and openly refusing digital payments to avoid falling under the tax radar.

This sudden withdrawal from digital payment systems raises larger concerns about the impact of strict compliance enforcement on India’s informal economy. Many traders argue that while digital payments increased convenience and transparency, it has now made them vulnerable to tax probes they were unprepared for.