Using digital payment data as evidence, the Karnataka State Commercial Taxes Department has issued show-cause notices to nearly 13,000 small businesses and street vendors. This is due to alleged GST evasion.

This action follows a six-month investigation into UPI transactions between fiscal years 2022 and 2025. Authorities matched payment records from platforms such as PhonePe, Google Pay, Paytm, and BHIM with GST registration data. They found that many entities had a turnover above the mandatory threshold—Rs 20 lakh for services and Rs 40 lakh for goods. Yet, they were not registered under GST.

Officials say the move is meant to bring informal businesses into the tax net. However, it has triggered concerns that strict enforcement could backfire. Many small traders are now avoiding UPI payments due to fear of tax scrutiny. This could potentially reverse the gains made under the Digital India initiative.

Critics argue that while digital tracking is a powerful compliance tool, it must be paired with simplified processes and support for small businesses to be effective. Otherwise, the very segment it seeks to formalise may retreat into cash-based operations.

The Karnataka model could serve as a blueprint for similar initiatives across India. But its success will depend on whether it promotes inclusion or discourages digital adoption in the informal sector.

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