The Karnataka State Commercial Taxes Department has issued show-cause notices to nearly 13,000 small businesses and street vendors. These notices are based on discrepancies between digital payment transactions and GST compliance, particularly focusing on data from UPI platforms such as PhonePe, Google Pay, and Paytm.
What Triggered the Notices?
Over a six-month audit period, the department identified businesses that appeared to exceed the GST registration thresholds but had not registered under the GST system. These thresholds are currently set at ₹40 lakh in annual turnover for goods and ₹20 lakh for services.
Even small vendors, such as food stall operators and local traders, were found to have transactions crossing these limits over time. The notices allege that these businesses have been operating without the necessary GST registration.
Impact on Businesses
The sudden issuance of thousands of notices has caused concern among small traders. Many have begun refusing digital payments altogether, fearing further scrutiny. This trend poses a challenge to the broader push toward a cashless economy and digital transparency in business operations.
Government Response
In response to the growing unease, the Karnataka Chief Minister has offered relief to affected businesses. The government has indicated a willingness to waive past GST dues for businesses that voluntarily register under GST following receipt of a notice.
Additionally, the state has launched an awareness campaign to educate small traders about GST compliance and the benefits of formal registration.
Key Considerations for Small Businesses
- GST Registration Thresholds: Businesses must register for GST if they exceed ₹40 lakh in turnover from goods or ₹20 lakh from services annually.
- Digital Payments and Audit Trail: Transactions through UPI and other digital platforms are easily traceable and form a key basis for audits.
- Composition Scheme: Eligible small businesses can consider opting for the GST Composition Scheme, which offers simplified compliance and lower tax rates.
- Responding to Notices: Businesses receiving a show-cause notice should respond promptly and seek professional guidance to avoid penalties or further action.
Looking Ahead
This move by the Karnataka tax authorities reflects a broader shift toward data-driven compliance enforcement in India. While the intention is to improve tax collection and formalize the economy, it also highlights the need for clearer guidelines and support mechanisms for small businesses navigating these requirements.
Small business owners should stay informed, track their digital payments, and ensure that they are in compliance with GST regulations to avoid future legal or financial challenges.