Once hailed as a digital payment leader, Bengaluru is switching to physical currency, replacing QR code stickers by printouts or scribbled notes that read, “No UPI, only cash.” Small vendors who once favoured UPI payments are now urging customers to pay in cash, citing pressure from tax authorities. “I do a business of about Rs 3,000 a day and live on the small profit I make. I can’t accept payment by UPI anymore,” Shankar, a shopkeeper in Horamavu told ET.According to vendors, lawyers and accountants, thousands of unregistered small businesses, including street food stalls, push carts and corner shops, have received GST notices. Some face demands running into lakhs of rupees.Advocate Vinay K Sreenivasa, joint secretary of the Federation of Bengaluru Street Vendors Associations, said many vendors fear harassment by GST officers and possible eviction by civic authorities, prompting them to switch to cash.Under the current GST framework, businesses supplying goods must register and pay GST if their annual turnover exceeds Rs 40 lakh. For service providers, the threshold is Rs 20 lakh.The commercial taxes department stated that notices were issued only in cases where UPI transaction data since 2021-22 indicated turnover levels that require GST registration. It said such businesses must register, disclose their taxable turnover, and pay the applicable tax.

However, HD Arun Kumar, former additional commissioner of commercial taxes in Karnataka, said GST authorities cannot simply quote random figures as turnover. “Under the GST laws, the burden of proof is on officers. They must establish it before arriving at a tax demand, unlike in money laundering cases,” he said.Opposition BJP MLA S Suresh Kumar said he plans to write to Chief Minister Siddaramaiah seeking his intervention.A former GST field official pointed out that not all UPI credits reflect business income. “Some of it would be informal loans or transfers from family and friends,” he said.“Bengaluru may emerge as a test case. If the GST authorities can net a good chunk of revenue by tapping unregistered vendors, other states too will take the cue as every state is desperate for funds,” said chartered accountant Sreenivasan Ramakrishnan of Sreeni & Associates.

“Officials have zeroed in on chat vendors with high business in Mumbai. It's only a matter of time considering the huge potential tax base,” he added.Karnataka’s tax officials are under pressure to meet a collection target of Rs 1.20 lakh crore for 2025-26. CM Siddaramaiah is grappling with the twin demands of funding Rs 52,000 crore worth of welfare guarantees and responding to pressure from Congress MLAs seeking funds for infrastructure.