In many parts of Bengaluru, customers are being told to pay only in cash. Small vendors and shopkeepers have started putting up signs saying “No UPI, Only Cash”, raising concerns and confusion among regular shoppers. But what’s really going on?

Why Bangaluru shops are avoiding UPI

According to an Economic Times report, several shop owners in Bengaluru have recently received tax notices from the Goods and Services Tax (GST) department. These notices reportedly run into lakhs of rupees, and most of them are based on digital payment records, including those made through UPI (Unified Payments Interface).

Fearing more tax scrutiny and possible eviction, many vendors have now stopped accepting UPI payments altogether. Most of those affected are small business owners like roadside sellers, small grocery shops, and street vendors.

What the law says about GST

As per GST rules, if a business sells goods and earns over ₹40 lakh in a year, it must register and pay GST. For businesses offering services, the limit is ₹20 lakh.

The Commercial Taxes Department in Karnataka clarified that the notices were only sent to businesses whose total turnover (income) appeared to cross these limits, based on data from 2021–22 onwards. And this includes all payment methods, not just UPI.

Tax department: “UPI alone not the reason”

Trying to calm the panic, the department said:

“The GST is applicable on the consideration received for the supplies in any form, and UPI is only a method of receiving such consideration. The department will take suitable action to collect the applicable tax under the GST Act from the traders who have received consideration in any form.”

They added that UPI is just one way of receiving money; they also look at payments made through debit/credit cards, bank transfers, digital wallets, and even cash.

So, avoiding UPI doesn’t mean a shop owner is safe from GST if they’re earning more than the legal limit.

HD Arun Kumar, former additional commissioner of commercial taxes in Karnataka, told ET that tax officials can’t just raise a demand without proof:

“Under the GST laws, the burden of proof is on officers. They must establish it before arriving at a tax demand, unlike in money laundering cases.”

This means the tax department needs to show clear proof before asking someone to pay GST.

Why is Karnataka doing this?

Karnataka’s government has set a huge revenue target of ₹1.2 lakh crore for the year 2025–26. At the same time, Chief Minister Siddaramaiah is under pressure to manage funds for both ₹52,000 crore worth of welfare schemes and infrastructure demands from Congress MLAs.

That’s why the state’s tax department is under pressure to increase collections, which may be why they’re tightening checks on businesses.

Some experts worry that other states might also start doing the same if Karnataka’s crackdown leads to big tax recoveries from small vendors. However, so far, there is no confirmation of this happening elsewhere.