UPI dilemma: Bengaluru's small vendors fear big trouble over tax notice

Bengaluru: Small vendors accepting UPI payments in Bengaluru are on tenterhooks, after a recent directive from the Commercial Taxes Department spooked them.

The department recently said that businesses with an annual turnover exceeding Rs 40 lakh (goods) or Rs 20 lakh (services) must register for GST and pay appropriate taxes.

Following the directive, many are either hiding UPI QR codes or removing the payments option entirely. Others are in a dilemma as most customers don’t carry cash. 

The department has collected data from UPI service providers regarding payments received by businesses from 2021–22 to 2024–25. 

It is now issuing notices to businesses that have received more than Rs 40 lakh via UPI but have neither registered under the GST Act nor paid the applicable tax. 

Small vendors—bakeries, tea stalls, cigarette kiosks and gift shops—say the move overlooks their daily realities. Many operate on high turnover but razor-thin margins and fear the policy could drive them out of business. 

Near Indiranagar, a juice stall cashier revealed they’d been told to remove UPI scanners but hesitated. "Most customers don’t carry cash. We’re stuck," the cashier said. 

In RR Nagar, a stationery shop employee was in a dilemma. "We use both UPI and cash. But with this rule, we either lose customers or lose money," the employee said.

A bakery and tea stall owner in the same neighbourhood said the UPI scanner could become the casualty of the move. "My sales look high, but most of it goes into rent, supplies and staff. If I’m taxed on this, I’ll have to remove my UPI scanner and go cash-only." 

In Vasanthnagar, a woman vendor at an Iyengar bakery echoed the sentiment. "I might have to hike prices or ask for tips — maybe a 5% tip on MRP," she said in a lighter vein. 

A gift shop off MG Road reported 90% of its sales happen via UPI. "We can’t afford to lose that," said the owner. 

Several cigarette stalls across the city remained shut, fearing police raids. 

Multiple UPI IDs

The department has obtained data from UPI platforms about nearly 65,000 merchants in the state receiving payments via UPI.

"We found multiple PAN numbers registered at the same address, with regular fund transfers through UPI," according to a department official. “Many are using multiple UPI IDs in the names of their family members to receive payments. One shop in Balepet was found using 9 UPI IDs, each of which received over ₹20 lakh."

A senior official in the Central Board of Indirect Taxes (CBIC), Bengaluru, insisted that the recent actions are aimed at preventing overpricing and ensuring tax compliance. 

"The measures may be causing concern but our goal is to promote fair business practices. The government can't prevent vendors from switching to cash-only transactions but it will encourage them to remain compliant and pay taxes," the official said, insisting anonymity. 

The official added vendors are not taxed on their entire earnings and can claim returns with valid documentation, such as bills and rent receipts. 

Highlights - Taxing times
Businesses with an annual turnover exceeding Rs 40 lakh (goods) or Rs 20 lakh (services) told to register for GST and pay taxes
Following the move, many vendors are either hiding UPI QR codes or removing the payments option 
But it is easier said than done as most customers don’t carry cash
Vendors say they operate on razor-thin margins and fear the policy could drive them out of business