A small vegetable vendor from Haveri, Karnataka, is facing an unexpected tax burden after receiving a GST notice demanding Rs 29 lakh, triggering fresh concerns among small traders over digital transactions.
Shankargouda, who runs a modest vegetable stall near the Municipal High School grounds, has been accepting UPI and digital wallet payments from his customers for the past four years. However, he was stunned to learn that the GST Department has calculated Rs 1.63 crore worth of transactions, now demanding lakhs in taxes.
"I buy vegetables directly from farmers and sell them fresh. I file income tax returns regularly and maintain proper records. I don't know how I'll pay such a huge amount," Shankargouda told.
Tax experts say fresh and unprocessed vegetables are exempt under GST. Since Shankargouda sells fresh produce without any processing, and procures it directly from farmers, his transactions should not be taxable under the current GST structure.
Yet, the use of UPI has triggered a red flag, with authorities treating the total inflow as business income potentially liable to tax. Shankargouda's case is not isolated. According to a report, hundreds of small, unregistered vendors in Bengaluru and surrounding areas have received GST notices, some with tax demands running into lakhs.
UPI to Cash: A Growing Shift
This regulatory pressure has sparked a reversal in digital payment adoption, especially among micro-enterprises and street vendors. In many parts of Bengaluru, QR codes are being removed and signs now read "No UPI, Only Cash." Vendors say this shift is driven by fear of tax scrutiny and surprise GST demands.
Legal and financial experts warn that small traders, despite operating within GST-exempt categories, are being caught in a compliance grey area-where digital footprints are being mistaken for taxable income.
On July 17, the Karnataka GST Department acknowledged the trend of businesses shifting to cash and clarified that tax applies to all income, regardless of payment mode. Officials also warned of strict action against those underreporting income or trying to hide their real earnings.
Small Vendors Caught in the Crossfire
While digital payments were once promoted for transparency and convenience, small vendors now find themselves in a dilemma: embrace cash to avoid scrutiny or continue UPI and risk hefty tax notices. For many like Shankargouda, it's a question of survival, not just compliance.
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