Following Karnataka, the states of Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Gujarat in India have requested merchant turnover data from UPI applications and payment aggregators. The move is aimed at identifying businesses crossing the ₹40 lakh threshold to enforce Goods and Services Tax (GST) compliance, potentially altering digital payment adoption among small retailers.
A policy-driven shift is underway as the Commercial Tax Department of Karnataka and four other states—Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Gujarat—have formally requested merchant turnover data from Unified Payments Interface (UPI) platforms and digital payment aggregators to cross-verify tax compliance under India’s Goods and Services Tax (GST) framework.
This regulatory effort marks a significant escalation in digital transaction monitoring. These state departments are focusing on merchants whose annual turnover exceeds ₹40 lakh, the threshold mandating GST registration under national tax law. UPI platforms, which facilitate seamless digital payments for millions of small traders and retailers across India, are now being asked to provide data that may result in tax demand notices for non-compliant entities.
A senior source within a leading UPI-integrated financial services firm noted, “The states’ move signals a broader trend of revenue rationalization, but also risks reversing gains made in digital penetration over the last five years. Small merchants, in particular, view this as an indirect penalty for accepting digital payments.”
In Karnataka, early tax notices triggered merchant protests, and the ripple effects are now being felt across neighboring states. Traders’ associations are urging businesses to revert to cash-based sales as a form of protest and risk mitigation, even as consumer preference for UPI remains high. The tension highlights the dual-edged nature of digital transparency—while it improves traceability, it also exposes small businesses to compliance pressures many are not prepared for.
The implications could be far-reaching. Experts say that unless regulatory clarity is provided on how data will be used and thresholds are enforced uniformly, more businesses may voluntarily decelerate their digital adoption, especially in semi-urban and rural regions where margins are tighter and tax literacy remains low.
Furthermore, digital payment providers and aggregators—many of which operate under regulatory frameworks set by the Reserve Bank of India—are now navigating compliance requests from individual state departments. This fragmented oversight could lead to data privacy challenges and operational disruptions unless central guidelines are reinforced.
The GST Council may need to weigh in to balance revenue objectives with the nation’s ongoing push toward formalizing the economy via digital means. Until then, merchants appear caught between convenience and compliance.
