Why Vendors are Getting GST Notices for UPI Transactions Crossing ₹40 Lakh

Across India, thousands of small and medium traders have recently received unexpected Goods and Services Tax (GST) notices triggered by high volumes of digital payments. These notices have left many traders anxious and confused, but clarity and compliance can resolve the situation effectively.

Digital Transactions Over ₹40 Lakh Now Under GST Radar

The Commercial Tax Department has begun issuing GST notices based on data from FY 2021–22 onwards, focusing on UPI, bank transfers, and POS payments. Any trader whose total credits exceed ₹40 lakh per annum for goods or ₹20 lakh for services is mandated under Section 22 of the GST Act, 2017, to register for GST even if they're dealing in exempt items. These notices are not penalties but requests for clarification regarding the nature of these large transactions tied to PAN-linked accounts.

Delving Into the Nature of Transactions

Many of these flagged transactions involve businesses without GST registration logging ₹2 crore to ₹5 crore in digital receipts annually. The department asks for explanations and records, especially from vendors in exempt categories like fruits or milk. In such cases, documentation such as invoices or sales records for at least one year can support exemption claims. Traders failing to respond may face legal action, though initial notices are informational.

Read More: 50% of India's GST Comes from 5 States; UP Alone Contributes Over 13%!

Cash Transactions Won’t Help Evade GST

Since receiving notices, some traders have shifted from UPI to cash. However, GST law considers any form of transaction, either in cash or digital, as part of the total turnover. Attempting to avoid digital payments does not eliminate tax liability and can attract further scrutiny. Traders are urged to maintain simple billing systems and basic books to show compliance or request exemptions.

What Traders Should Do After Receiving a Notice

If a trader receives such a notice, they must visit their jurisdictional GST office and present documentation supporting their claims, such as proof of exempt goods sales or non-taxable incomes like gifts or loans. For small businesses, options like the Composition Scheme are useful, as they allow them to pay just 1% GST on turnover below ₹1.5 crore annually with simplified filing.

Conclusion

The surprise GST notices are part of a broader transparency initiative focused on bringing eligible traders into the tax system. Documentation, clarity, and engagement with GST offices are key to navigating the process smoothly. Traders dealing in exempted goods can avoid penalties with proper records and communication.

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