The UPI Controversy That Shook Bengaluru
Bengaluru, a city long celebrated as a torchbearer of India’s digital economy, is now witnessing a surprising reversal. Across food carts, kirana stores, and roadside stalls, signs now read: “No UPI, Only Cash.” This quiet but growing resistance stems from a recent wave of panic among small and unregistered traders, triggered by tax notices linked to their digital payment trails.
The spark? A crackdown by Karnataka’s Commercial Taxes Department that used UPI data to identify and target over 14,000 traders for allegedly breaching Goods and Services Tax (GST) thresholds—an act that has sent shockwaves through the city’s informal trade economy.
What Triggered the Panic
The chain reaction began when the Commercial Taxes Department began combing through UPI transactions to flag businesses not registered under GST. As per current law, businesses dealing in goods must register for GST if their annual turnover exceeds ₹40 lakh, and ₹20 lakh for those in services.
Using this benchmark, the department reportedly issued notices to thousands of unregistered traders, citing arrears dating as far back as the financial year 2021–22. In some cases, demands reached several lakhs of rupees, sending small traders—many of whom had embraced digital payments in good faith—into a state of alarm.
The response was swift and widespread: to protect themselves from further scrutiny, vendors began refusing QR-based payments, reverting entirely to cash transactions.
Flawed Data Interpretation? Legal Experts Weigh In
Tax experts and legal professionals argue that the government’s methodology is deeply flawed. Relying solely on UPI transaction data to determine taxable turnover is risky, they warn, particularly for informal businesses where personal and business expenses often merge.
A former Karnataka tax official, speaking to the Times of India, underscored the need for corroborative evidence beyond digital credits. “Authorities can’t simply convert UPI credits into turnover figures,” he said. “Not all digital receipts equal business income.”
This is particularly true for micro-entrepreneurs and vendors whose margins are razor-thin, and who often accept payments through personal bank accounts. For such businesses, digital convenience has now become a liability.
A Revenue Push Behind the Crackdown
Behind the tax department’s aggressive enforcement lies a broader fiscal challenge. The Karnataka government is under pressure to meet an ambitious ₹1.2 lakh crore revenue target by 2025–26. With over ₹52,000 crore committed to welfare schemes and growing political demands for enhanced infrastructure, expanding the tax base has become a priority.
While plugging revenue leakages is a legitimate goal, critics argue that disproportionate enforcement against small traders’ risks destabilizing the very foundation of digital adoption in the state.
Government Response: Awareness Over Intimidation
Facing backlash and a visible dip in UPI usage, the state has pivoted from enforcement to engagement. In response to the outcry, the Karnataka government recently launched the ‘Know GST’ campaign, aimed at spreading awareness among small traders about GST rules and thresholds.
The first workshop, held in Bengaluru’s Koramangala, saw Commercial Taxes Department officials address trader concerns directly. The initiative seeks to demystify GST laws and allay fears, assuring vendors that compliance doesn’t necessarily mean punishment.
However, trust once broken is hard to rebuild. Traders remain wary, and many insist they will stick to cash until clarity and fairness in enforcement are guaranteed.
A Digital Reversal with Broader Implications
The Bengaluru UPI fallout reveals a deeper tension in India’s digitization push: how to reconcile the government’s need for tax revenue with the informal sector’s vulnerabilities. The sudden switch from digital inclusion to digital dread exposes a policy gap—where enthusiasm for data-driven governance collides with ground realities.
While transparency and taxation are essential, targeting the very traders who championed digital adoption could unravel years of fintech progress. If digital payments are to thrive, the state must balance enforcement with empathy—guiding, not punishing, those who are still finding their footing in the formal economy.
(With agency inputs)
