Is “Cash Only or Pay Online with Added GST” Legal in India? A Detailed Analysis
Offering “cash without GST” but adding GST for online payments is illegal for GST-registered businesses in India
GST Legal in India
GST Legal in India
In recent months, there has been a growing number of cases where shops, restaurants, and service providers tell customers they can pay a lower price in cash without GST, but if they pay online through UPI, card, or bank transfer, GST will be added to the bill.
On the surface, this might look like a simple pricing choice for the customer. In reality, this practice is illegal for GST-registered businesses and can attract serious penalties. This article explains why such dual pricing is against the law, what the GST framework says, and what both customers and businesses should know.
GST and Its Applicability
The Goods and Services Tax (GST) is a nationwide indirect tax that applies to the supply of goods and services. It is governed by the Central Goods and Services Tax (CGST) Act, 2017, along with the State GST Acts and the Integrated GST Act for inter-state transactions.
When GST Registration Is Required
- For goods: Annual turnover above Rs. 40 lakh in most states (Rs. 20 lakh in special category states).
- For services: Annual turnover above Rs. 20 lakh in most states (Rs. 10 lakh in special category states).
Once registered:
- Businesses must issue GST-compliant invoices.
- They must collect GST at applicable rates (ranging from 0 percent to 28 percent).
- They must file periodic returns like GSTR-1 (sales data) and GSTR-3B (tax summary).
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
GST Liability Depends on Supply, Not Payment Mode
A key principle under Section 9 of the CGST Act is that GST is payable on the supply of taxable goods or services. This means:
- Whether a customer pays in cash, by UPI, by card, or by bank transfer, the tax obligation is the same.
- The law does not allow a business to skip GST simply because the payment is made in cash.
Why the “Cash Without GST” Offer Is Illegal
1. Violation of Uniform Tax Collection
A registered business must charge GST on all taxable sales. Offering GST-free cash deals while adding GST only to digital payments is selective non-compliance. This violates the principle of uniform tax treatment for all customers.
2. Invoice Rules
Under Section 31 of the CGST Act, registered businesses must issue a proper GST invoice for all sales over Rs. 200. This applies to both cash and digital transactions. Skipping the invoice for cash sales is a clear violation.
3. Fraudulent Conduct
Not collecting or not remitting GST for certain sales can be treated as deliberate evasion under Section 122 of the CGST Act. This includes supplying goods or services without issuing an invoice or issuing an incorrect invoice.
Recent Enforcement Trends
In July 2025, the Karnataka Commercial Taxes Department clarified that GST must be charged for all transactions if the vendor is registered. The payment method does not matter.
On August 11, 2025, a case in Bengaluru went viral when a paying guest accommodation provider told tenants to either pay “cash only” or pay online with 12 percent GST. This sparked public criticism and brought fresh attention to the practice.
In April 2025, the government also clarified that there is no GST on UPI transactions themselves. GST is levied only on the underlying goods or services, not the payment method.
Why Businesses Do It
This tactic is a form of tax evasion.
- Cash sales are under-reported in tax returns, which reduces the GST liability.
- Digital payments leave a trail that is visible to tax authorities, making it harder to hide the sales.
- By avoiding GST on cash deals, the business can offer lower prices, attracting more customers while keeping the tax portion as extra profit.
This is not a new practice. Before GST, many businesses under-reported cash sales to avoid VAT or service tax. However, with the growth of UPI and other digital payments, under-reporting has become more difficult, leading to renewed focus on cash-only incentives.
Penalties Under GST Law
Penalties vary depending on whether the offense is considered unintentional or fraudulent.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
| Offense Type | Penalty | Relevant Section | Notes |
| Non-fraudulent short payment or no invoice | 10% of tax due, minimum Rs. 10,000 plus 18% interest | Sec 122(1) | Minor breaches under Rs. 5,000 may get a warning |
| Fraudulent evasion (e.g., willful under-reporting via cash sales) | 100% of tax due, minimum Rs. 10,000 | Sec 122(1), Sec 74 | Up to 150% penalty for proven fraud |
| Late return filing | Rs. 20 per day (Rs. 10 CGST + Rs. 10 SGST), max Rs. 5,000 per return plus 18% interest | Sec 47 | May block subsequent filings |
| High-value evasion (>Rs. 5 crore) | Imprisonment up to 5 years and fine | Sec 132 | Cognizable offense, arrest possible |
Cash Restrictions Under Income Tax Law
GST law does not directly cap cash receipts but the Income Tax Act, 1961 imposes strict limits:
- Section 269ST: No person can receive Rs. 2 lakh or more in cash from a single person in a day or for a single transaction.
- Section 40A(3): Businesses cannot claim expense deductions for cash payments over Rs. 10,000 per day.
These laws indirectly reduce the scope for large-scale cash-based GST evasion.
Government Measures in 2025
To stop tax evasion, the government has introduced:
- Multi-factor authentication (MFA) for GST portal access.
- Restrictions on e-way bills for non-compliant taxpayers.
- Data analytics to match reported sales with UPI and bank data.
- Whistleblower incentives for reporting tax evasion.
What Customers Should Do
- Always ask for a GST invoice if the seller is registered. This protects warranty claims and allows input tax credit for eligible buyers.
- Avoid accepting cash-only deals that waive GST, as they may make you complicit in tax evasion.
- Report suspicious cases to the GST helpline (1800-1200-232) or email gstcouncil@gov.in.
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