'Show us your exemptions, we'll close it': GST official breaks down UPI-based notices in Karnataka

Nearly 6,000 GST demand notices issued to traders in Karnataka, based on UPI transaction data, have triggered widespread concern and protest calls. The notices, which some traders claim were issued without adequate explanation or due diligence, have led to a statewide bandh call on July 25.

The state's Commercial Taxes Department has defended the move. Joint Commissioner Meera Suresh Pandit told PTI that the notices were not final tax demands but proposals based on preliminary data. "If the reply is convincing or the goods and services are exempted under the GST Act, notices will be dropped," she said.

Several trade bodies have urged traders to boycott UPI payments and revert to cash transactions. But Pandit said the department's move was within the legal framework. "When a person reaches the threshold limit of ₹20 lakh for services or ₹40 lakh for goods, it is mandatory for the person to get registered under the GST Act," she said. "The registration empowers the trader to collect taxes from the consumers and pay it to the government… When the dealers collect them and fail to remit them, they are treated as unregistered persons, and we issue notices accordingly."

She explained that the department's Services Analysis Wing had flagged potential defaulters using reliable sources like UPI transaction data. "If a person has transacted over ₹20 lakh for services or ₹40 lakh for goods in a year through UPI, it indicates that they may be liable to register under GST," Pandit said. "But we do not assume anything-if the turnover is completely exempted, the registration is not required."

Traders who have received notices have the opportunity to file a written response or appear in person. If the reply is convincing, the officer added, the notice will be dropped and proceedings will close with a nil demand.

On the growing calls for a bandh and boycott of UPI, Pandit appealed for a measured response. "Calling for a 'Bandh' will not serve the purpose. They may represent their concerns peacefully," she said. "Some innocent traders are being carried away, hoping every notice will be withdrawn.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."

Trade activist Sajjanraj Mehta questioned the rollout, calling it abrupt. "Many small traders were unaware that their UPI inflows, often a mix of business and personal transactions, would be treated as undeclared turnover," he said. "The fairness issue lies not in enforcement itself, but in the suddenness and lack of clarity."

Mehta also raised concern about exempt goods. "Issuing notices without accounting for exempt goods like fruits, vegetables, or unbranded food items shows a lack of nuance," he said, calling for a "more tailored, data-informed approach." 

He said vendors in cities like Bengaluru and Mysuru are already showing hesitation. "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 noted.

Pandit said that UPI is "only one indicator" and does not reflect the full turnover. "There could be other modes of payment like cash, card, or net banking," she said. "So, if they are not liable for registration, they must explain and support their claim."

She stressed that the department was open to engagement. "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."

On whether traders are being caught off-guard, Pandit said the department has consistently educated them. "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."

(With inputs from PTI)