GST Notice to Small Trader Over UPI Payments Sparks Fear Among Small Businesses

A recent post on the social media platform X by Chartered Accountant Chirag Chauhan has brought attention to a growing issue faced by small businesses in India. The post shared a copy of a GST notice issued by the Karnataka tax department to a small trader in Bengaluru named Jayaram Poojary.

The notice was sent because the trader had received payments through digital platforms like UPI and PayTm, and the authorities believed his total yearly income was more than the Rs. 20 to Rs. 40 lakh limit set under GST rules. According to the GST Act, any business that crosses this limit must register for GST and pay taxes.

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The notice was issued under Section 63 of the GST law, which allows officers to make a best judgment assessment if someone is not registered but seems to be running a business over the threshold.

In this case, the department applied an 18 percent GST rate without using a proper classification code, which experts say may not always be accurate or fair. The notice demanded nearly two lakh rupees, including tax, interest, and penalties.

This case is not unique. Reports show that more than 12 lakh small businesses across India received similar notices in 2023. Many of these businesses had accepted payments through apps like Google Pay, BHIM, and PayTm but did not register under GST. With digital transactions now easy to track, tax officers are using this data to catch businesses that may have crossed the GST limit without realizing it.

Small businesses have been quick to react. In Bengaluru, many shopkeepers and street vendors have taken down their UPI QR codes and are going back to cash payments. They say they are afraid of getting large tax notices and do not fully understand the rules. Some say they did not know their total income from digital payments had gone beyond the GST limit. There is now growing concern that this shift back to cash could hurt India's goal of promoting digital payments.

Reactions to Chirag Chauhan’s post were mixed. Some people agreed that businesses must follow the law and register for GST when needed. Others said the notices felt like harassment and called for a fairer and more helpful approach.

One person pointed out that the notice included personal details like the trader’s PAN number and phone number, which should have been kept private. Another user raised concerns about how the 18 percent tax was calculated, especially since no proper product code was used. They also mentioned that goods like farm produce are exempt from GST, but this was not considered in the notice.

Even some political leaders have spoken out. A Member of the Legislative Assembly from Karnataka said he would ask the Chief Minister to take action. He said these tax demands were scaring small traders. Local vendors' groups also raised their voices, saying the rules are too strict and hard to understand for small sellers who are just trying to earn a living.

Experts agree that the GST system is meant to ensure everyone pays their fair share of taxes. But they also believe that small businesses need more support and clearer guidance. Some suggest that small traders register under the GST composition scheme, which offers easier filing and lower tax rates. Others believe the government should start help centers or provide advisory services to teach small businesses how to stay compliant without fear.

This issue has become more serious because digital payments have grown rapidly in recent years. Many small businesses started using UPI and other apps during and after the pandemic. While this brought them more customers, it also left a clear trail of their earnings.

Tax officers are now using this data to check if any business crossed the GST threshold. But in many cases, these traders were unaware that they had crossed the limit or did not know that registration was required.