The Central government's indirect tax administration is set to adopt a "nudge" approach to bring more retail traders and vendors under the GST framework, steering clear of aggressive enforcement tactics that have sparked protests in some states, officials said.
Under GST law, traders and vendors with annual sales exceeding Rs 40 lakh must register for GST. However, a significant number remain outside the tax net. Recent drives by Karnataka and Tamil Nadu to use Unified Payments Interface (UPI) transaction data for enforcement triggered backlash, particularly after vegetable vendors-whose goods are exempt from GST received notices.
According to two government officials, the Centre aims to expand the GST base among the politically active and unionised trading community through persuasion rather than punitive measures. "The GST administration will follow a nudge approach to enhance compliance and formalise small businesses. This was discussed at the Principal Chief Commissioners' meeting on June 20 chaired by Finance Minister Nirmala Sitharaman," one official said.
The Centre has asked states to share details of their UPI-based compliance initiatives and is expected to update Parliament in the ongoing session. Officials also hinted that more states may explore using digital transaction data to identify potential GST liabilities, while factoring in political sensitivities, traders' awareness gaps, and the practical challenges of regulating millions of small vendors.
Currently, only about 15.4 million individuals and businesses are registered under GST, far fewer than the estimated 73 million non-farm, unincorporated enterprises in India.
UPI Data and GST Enforcement
Under the GST framework, tax authorities can request information from any agency, including the National Payments Corporation of India (NPCI), which operates UPI. However, UPI data does not indicate whether a payment is for taxable goods or exempt products. "Large-scale data collection may lead to inaccuracies, which can be corrected in adjudication. Tax claims will be dropped where they don't apply," an official clarified.
Experts caution that care must be taken to avoid discouraging digital payments among small businesses. "Authorities should reassure non-taxable small enterprises that GST will not burden them. Awareness about the composition scheme can also encourage registration," a tax specialist said.
The expert stressed that businesses crossing the Rs 40 lakh threshold and supplying taxable goods must comply, regardless of whether receipts are in cash or through digital modes.
The Union Finance Ministry and the Central Board of Indirect Taxes and Customs (CBIC) did not respond to emailed queries on the matter.
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