Is outrage over Rs 29 lakh GST notice to vegetable vendor’s UPI payments justified? Tax rules for small traders explained

In a small town of Karnataka’s Haveri a 48-year-old vegetable vendor who makes his living with small payments using UPI has unimaginably triggered a political storm and anti-UPI rebellion across the state.

Earlier this month, Prakash received a GST notice from the tax department, demanding a staggering ₹29 lakh in dues. The reason? His digital payment receipts—mostly tiny UPI transactions of Rs 10, Rs 20, or Rs 50 from daily customers—had added up to around Rs 40 lakh over four years. The tax authorities interpreted this as business income without proper GST registration or tax compliance.

He told ANI, ‘Since there are no GST rules on fruits and vegetables, I did not register for GST number. But I got a notice to pay Rs 29 lakh in taxes for a business of over Rs 40 lakh.” Further clarifying, “The officials have told me that if it is proven that I have done so much business in vegetables, the notice will be withdrawn…”

After the pandemic India has seen a massive surge in UPI payments. According to a January 2025 RBI report UPI now handles 85% of all digital payments in India and nearly half of all real-time digital transactions globally. 

Statewide Uproar

Now a GST notice on UPI payments has triggered a wave of protests across Karnataka.

Small vendors and traders across Karnataka have urged the government to withdraw recent GST notices over UPI transactions exceeding ₹40 lakh per annum. They have warned that stringent enforcement of the rule threatens the viability of their small-scale businesses. 

Under GST regulations, shops must register themselves if their annual turnover exceeds Rs 40 lakh, while service providers face a Rs 20 lakh threshold. 

“Small businesses run with a margin of 5 to 10 per cent. The tax (GST) along with other things like penalty, comes to 50 percent, and it is not possible for the vendors to pay such a huge tax. We request the government to intervene and give relaxation to small vendors in this matter,” Abhilash Shetty, of the Karnataka Pradesh Street Vendors Association, told ANI,

Political Firestorm

The incident has turned into a political flashpoint.

The Congress government in Karnataka, facing criticism for the tax notice has blamed the central GST regime, which it says lacks sensitivity toward the informal sector. Chief Minister Siddaramaiah has assured his government will take up the issue with the Centre.

The BJP, in turn, accused the state government of selective enforcement and politicizing a routine tax matter. “Tax laws apply to everyone. But targeting small vendors is not the solution,” said a BJP leader from the region.

ITR filing requirements for small vendors 

Most of these small vendors don’t issue invoices, they don’t have accountants, and certainly don’t expect to be audited for GST.

According to Income Tax guidelines, small vendors need to file income tax return if their annual income exceeds the basic exemption limit of ₹2.5 lakh. Those with business income over Rs 40 lakh (for goods) and ₹20 lakh (for services) need to register for GST. The nature of the goods or services sold determines the GST rate (ranging from 0% to 28% depending on item); for most services, it is 18%

If receiving business income via UPI, the usual GST rules apply, suggesting if your annual turnover exceeds the relevant threshold, GST registration and compliance is required.