How Unnecessary UPI Transactions Can Trigger Tax Notices?

The GST department issued Show Cause Notices under Section 63 to individuals for failing to comply with GST registration.

What's in the Notice?

You being an individual, have received the amount through Phonepe or Paytm towards the supply of service or goods to the extent of FY 2020-21 to 2024-25 without having enrolled under GST Act.

What is Section 22 of the GST Act?

Section 22 of the GST Act mandates registration if service supply annually exceeds ₹20 lakh or goods supply annually exceeds ₹40 lakh. Failure to register or pay due GST leads to notices and legal liabilities.

Compliance Requirements and Risks

Individuals receiving large amounts through UPI without GST registration are liable for tax and he/she must justify transactions if summoned by authorities.

Unnecessary or unclear transactions on the credit side of accounts often trigger scrutiny.

Loans, gifts or third-party transactions must be well documented to avoid confusion.

Maintaining detailed transaction records and filing accurate Income Tax Returns is critical to defend against notices and comply with tax laws.

Income Tax Return Filing and Thresholds

Filing ITR is mandatory when income exceeds ₹3 lakh, increased to ₹4 lakh from the financial year 2025-26 onwards.

Tax exemption limits will incease from ₹7 lakh to ₹12 lakh in FY 2025-26, affecting tax liability calculations.

GST registration thresholds is ₹20 lakh for service providers and ₹40 lakh for traders; exceeding these requires GST compliance regardless of ITR filing status.

Practical Advice and Precautions

Avoid unnecessary UPI transactions to prevent triggering GST or Income Tax department scrutiny.

Keep up-to-date and accurate records of all financial transactions, including gifts, loans, and third-party payments, to provide evidence if questioned.

Regularly check Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) to monitor reported transactions.

Seek professional assistance when needed to ensure compliance with evolving tax rules and avoid penalties.