Karnataka traders are gearing up for a statewide strike on July 25 in protest against thousands of GST notices triggered by UPI transaction data at a time when Prime Minister Narendra Modi has been lauding India’s digital payment ecosystem.

“Initiatives like Digital India and Unified Payments Interface (UPI) are showcasing India’s emerging capabilities to the world with global recognition and interest in India’s digital ecosystem are rapidly increasing”, the prime minister said at the beginning of the monsoon session of Parliament on Monday.

He remarked that UPI has established a strong presence in the fintech domain. He emphasised that India leads the world in real-time digital transactions, recording more than any other country globally.

“UPI has carved a distinct identity for itself in the Fintech world. Bharat now leads the world in real-time digital transactions,” PM Modi said.

6,000 notices spark outrage among traders

The Karnataka traders’ protest has been sparked by the issuance of nearly 6,000 GST notices based on UPI transaction data, leading to calls for a boycott of digital payments and return to cash-only transactions.

Several traders' associations have voiced their opposition and called for a bandh on July 25.

The Karnataka Commercial Taxes Department defended the move, stating the notices are part of a legal and data-driven compliance effort.

Tax department clarifies: Notices are preliminary, not final

Joint commissioner of commercial taxes Meera Suresh Pandit told PTI that the notices were not final demands but preliminary queries issued to verify whether the recipients were liable for GST registration and tax payment.

“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 clarified.

Threshold triggers and legal mandate

Pandit explained that individuals or businesses crossing the threshold of Rs 20 lakh for services or Rs 40 lakh for goods must register under GST and declare their turnover.

“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.”

She added that the department uses UPI transaction data from reliable sources as an indicator, especially when field-level identification isn't feasible.

“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.

Room for exemptions and fair hearings

Pandit emphasised that the department understands not all turnover is taxable and that each notice recipient can explain their case.

“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.”

She urged traders not to be misled by panic or misinformation and assured a fair process: “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.”

Department offers support, urges dialogue over protests

Pandit appealed for constructive engagement instead of strikes: “Calling for a 'Bandh' will not serve the purpose. They may represent their concerns peacefully.”

On questions around UPI being an incomplete picture of total turnover, she noted: “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.”

She also highlighted the department’s outreach efforts: “Prior to the rollout of GST in July 2017, we conducted door-to-door awareness programmes, workshops, and released educational videos.”

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

Even in the absence of responses, the process allows for multiple reminders and field visits before final assessments:

“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 said.

“We strictly adhere to the principles of natural justice and ensure every opportunity is given.”

“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.”

Traders say move lacks clarity and context

Trade activist Sajjanraj Mehta criticised the department’s approach, saying the enforcement, though legal, lacked clarity.

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

“The fairness issue lies not in enforcement itself, but in the suddenness and lack of clarity.”

He also questioned the failure to distinguish between taxable and exempt goods:

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

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

Shift away from UPI in markets, demand for clear guidelines

According to Mehta, some vendors in cities like Bengaluru and Mysuru are beginning to step back from UPI usage.

“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 concluded that what traders really need is better guidance:

“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.”