UPI Transactions Lead to ₹29 Lakh GST Notice for Vegetable Seller

Karnataka vendor gets ₹29 lakh GST notice for UPI payments; highlights tax risks for small businesses using digital transactions.

In Karnataka’s Haveri district, a 48-year-old vegetable vendor named Prakash received a ₹29 lakh GST notice from the tax department. The twist of the story is that this was not for charging GST. Instead, the notice was for accepting UPI payments from customers over a period of four years.

These small payments were made typically in denominations like ₹10, ₹20, or ₹50, and added up to around ₹40 lakh. Because this amount exceeded the ₹40 lakh turnover threshold for GST registration, the department flagged it as unregistered business income, despite Prakash dealing in GST-exempt goods like fruits and vegetables.

As per reports, Prakash has said he was unaware of such rules, believing GST didn’t apply to him. Officials have indicated that the notice could be withdrawn if he can show the income came solely from vegetable sales.

UPI Growth and Its Tax Implications

UPI (Unified Payments Interface) has become the most widely used digital payment method in India. According to a January 2025 RBI report, UPI now accounts for over 85% of digital transactions in the country.

While UPI promotes financial inclusion and helps small vendors go cashless, it also creates a transparent digital trail of every payment received. This makes it easier for tax departments to monitor and estimate business turnover, regardless of whether the business is profitable or dealing in GST-exempt items.

In essence, even if a vendor isn't liable to collect GST, the volume of digital payments alone can draw the attention of tax authorities.

When Does GST Apply?

According to the current GST framework:

• Goods sellers must register for GST if their annual turnover exceeds ₹40 lakh.
• Service providers must register if turnover exceeds ₹20 lakh.
• Exempt goods (like unprocessed fruits and vegetables) are not taxed, but crossing the turnover threshold still requires registration and documentation.
• Failure to register, even without intent, may attract notices, penalties, and interest.

In Prakash’s case, although no GST was charged on his sales, the volume of digital payments via UPI was treated as a signal of high turnover, triggering the notice.

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Conclusion

The incident shows that while increased use of UPI is beneficial, it can also lead to unintended tax scrutiny for small vendors. Understanding how digital payments interact with tax laws is becoming essential for small businesses in a rapidly digitising economy.

As UPI continues to grow, small vendors should be aware of their annual turnover and maintain proper records. They can also seek guidance from local tax helplines or government-run facilitation centers to avoid receiving tax notices.

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