Tax departments across several Indian states have launched a coordinated crackdown on an estimated 60,000 businesses that failed to register under the Goods and Services Tax (GST) regime. These businesses, despite operating below the radar, were traced using Unified Payments Interface (UPI) transactions—India’s most popular digital payment method. Departments in Karnataka, Tamil Nadu, Gujarat, Andhra Pradesh, and other states used digital payment trails to determine that several businesses exceeded the ₹40 lakh turnover threshold for goods or ₹20 lakh for services—beyond which GST registration is legally mandatory.
The sectors under scrutiny range from small eateries and hair salons to event decorators and auto-part retailers. Officials say many of these enterprises had either ignored registration or were unaware that their digital transactions made them traceable. “UPI leaves a footprint. And now, those footprints are being followed,” said a senior tax official involved in the campaign.
Digital Push Meets Tax Reality: Traders Alarmed
As the tax notices poured in, panic spread across small and micro enterprises. Businesses that embraced digital payment tools during the pandemic and demonetization are now questioning whether their openness has left them exposed. Many vendors in cities like Bengaluru have begun displaying signs saying “No UPI, Only Cash,” worried that any digital transaction could invite tax scrutiny. Some traders even threatened statewide shutdowns in protest, particularly in Karnataka, where the impact has been most visible. “There is a sense of betrayal,” said a Bengaluru-based electronics store owner. “We were told to go digital. Now that data is being used against us.”
Government Defends Action, Promises Support
Facing backlash, state governments and the Central Board of Indirect Taxes and Customs (CBIC) clarified that the move is not aimed at discouraging digital payments, but rather to enforce tax compliance uniformly. Officials emphasized that any business—whether accepting cash or digital—must register for GST if their turnover crosses the mandated limit. Several states have initiated steps to ease the burden: simplifying the GST registration process, allowing dues to be paid in installments, and setting up grievance cells to address complaints. Karnataka’s Chief Minister has assured small traders that the intention is not to harass them but to bring them into the formal economy. Still, concerns remain. Many argue that there should have been more awareness campaigns and support before initiating penal actions. “We need education before enforcement,” said a Chennai-based trade union leader.
Algoritha: The Most Trusted Name in BFSI Investigations and DFIR Services
Will This Drive Hurt India’s Digital Economy Push?
While the GST drive may lead to higher tax compliance and formalization, experts caution that it risks reversing years of digital payment adoption. If small businesses revert to cash to avoid surveillance, it could undermine India’s progress in building a transparent and digital-first economy. Economists argue for a balanced approach: combining data-driven enforcement with outreach programs, clear communication, and perhaps a temporary amnesty or grace period for smaller vendors who come forward voluntarily.
“The message must be clear: digital is good, and compliance is essential—but neither should feel like a trap,” said a policy analyst.