Haveri, Karnataka: A small vegetable vendor, Shankargouda, has received a shocking GST notice of ₹29 lakh for digital transactions amounting to ₹1.63 crore over the past four years — simply because he accepted UPI and wallet-based payments.
Despite government rules stating that fresh, unprocessed vegetables are GST-exempt if bought directly from farmers, Shankargouda’s digital trail caught the attention of GST officers.Explaining his situation, he said,
“I procure vegetables from the farmers and sell the produce at the small shop I own near Municipal High School grounds. Nowadays, customers favour UPI payments. I promptly file I-T returns every year. I have records for the same. The GST officials have served a tax demand of ₹29 lakh. How can I pay such a huge amount?”
His stall near the local municipal high school in Haveri had steadily built a loyal customer base paying mostly via UPI. That convenience has now turned into a legal and financial headache.
Why Did He Receive a GST Notice?
The notice from officials said,
“You have done transactions worth ₹1.63 crore in the last four years, for which, you have to pay GST of ₹29 lakh.”
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Shankargouda’s total sales using UPI crossed ₹1.63 crore in four years.
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This volume exceeded the GST registration threshold, and hence, authorities claim he now owes ₹29 lakh in tax dues.
The Bigger Impact: UPI Avoidance Trend
This incident is not isolated. Across Karnataka:
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Many small vendors have now stopped accepting UPI, switching entirely to cash.
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Stalls and shops are displaying signs like “No UPI, Only Cash” to avoid scrutiny.
GST rules clarify that: digitally recorded sales—even if GST-exempt—can trigger notices if overall turnover crosses limits.
Karnataka’s Crackdown on Digital Sellers
On July 12, the Karnataka GST department announced it would closely monitor:
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Digital payment-based businesses, especially small vendors.
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Any seller exceeding GST thresholds—even unintentionally—would receive notices.
By July 17, as vendors shifted to cash to avoid notices, authorities warned that GST applies regardless of mode of payment—UPI or cash.
What’s Fueling the Enforcement?
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Karnataka’s GST department is under pressure to meet the ₹1.2 lakh crore GST collection target for 2025–26.
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The state government also faces mounting demands for funding welfare schemes (₹52,000 crore) and infrastructure from Congress MLAs.
As a result, even small traders are facing tax heat as the state tries to plug every gap.
In India, fresh and unprocessed vegetables are exempt from GST, meaning they attract a 0% tax rate. This exemption applies to fresh, chilled, or unprocessed vegetables, whether sold by farmers or retailers. However, processed vegetables—such as those that are frozen, preserved, packaged, or labelled—may attract GST rates of 5% or higher, depending on the product and its preparation.
For example, dried, pre-packaged, and labelled vegetables typically attract 5% GST, while further processed vegetable products may be taxed at rates up to 12%.
Small vendors in India are required to file an Income Tax Return (ITR) if their annual income exceeds ₹2.5 lakh. Most small vendors with business income below ₹50 lakh can opt for the presumptive taxation scheme and file ITR-4 (Sugam). Under this scheme, vendors can declare a fixed percentage of their turnover as profit, simplifying tax compliance.
ITRs can be filed online through the Income Tax Department’s portal. For FY 2024–25, the last date to file ITR is September 15, 2025, unless an account audit is required.
In Karnataka, vendors like Shankargouda, who accepted digital payments (e.g., UPI) were issued GST notices based on transaction volumes, despite selling tax-exempt goods. As a result, many small traders in the state have shifted back to cash-only payments, avoiding digital trails.
