State tax departments in Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Gujarat are now following Karnataka’s lead and asking UPI apps and payment companies to share yearly sales data of merchants. This move is meant to catch shopkeepers and businesses who should be registered for GST but aren’t.

By law, anyone selling goods and making over Rs 40 lakh per year (Rs 20 lakh for services) must sign up for GST. If they haven’t, tax officials might send them a notice—which has already happened to about 14,000 traders in Karnataka who had over Rs 40 lakh in UPI receipts between 2021 and 2025. For now, the notice only asks them to register and explain their income, not to pay tax immediately.

In Karnataka, this has upset many small traders—like bakery, chai, and condiment shop owners—who say the notices are unfair, especially since some of their UPI payments might be personal money, not business sales. They’ve threatened a statewide shutdown to protest these demands, and trade groups are now in talks with tax officers and UPI apps to sort things out.

This enforcement is pushing some small shops to start preferring cash again, just to avoid drawing attention or new hassles. But GST officials say this crackdown is about fairness: everyone making big money should follow the same rules as businesses already registered for tax.

UPI payments are hugely popular—over 18 billion transactions every month, and nearly two-thirds of UPI payments are actually for shopping at stores. Merchants like UPI because there’s no extra fee (unlike card payments), so it’s cheaper for them.

Finally, there’s no GST on UPI transactions themselves—only on the business’s turnover if they cross the Rs 40 lakh mark. The government says sales of things like bread are exempt, but packed snacks and other taxable items aren’t. Traders can respond to notices by showing records or clarifying if any UPI money was for non-business reasons, and tax officers are supposed to help guide them through the process.