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In early July 2025, a massive controversy erupted in Karnataka after thousands of small traders, including vegetable vendors and street-side shopkeepers, began receiving Goods and Services Tax (GST) notices based on their UPI transactions. The issue came to public attention after 48-year-old Shankargouda Hadimani, a vegetable vendor from Haveri, was served a notice demanding Rs 29 lakh in GST dues. According to the notice, over Rs 1.63 crore had been credited to his bank account via UPI transactions over the last four years.
Shankargouda, who has been running a small vegetable stall near the Municipal High School in Haveri since 2021, said the sum reflected cumulative daily sales of exempt goods like fruits and vegetables. “I have been filing income tax returns. But I never registered for GST because I sell vegetables, which are not taxable,” he told the media. He added that officials had told him the notice would be withdrawn if he could prove his goods were exempt.
Earlier in July, the Karnataka Department of Commercial Taxes issued nearly 9,000 such notices across the state. Officials stated that these were not tax demands but inquiries triggered by UPI data flagged between 2022 and 2025, focusing on unregistered businesses receiving annual digital payments exceeding Rs 40 lakh for goods or Rs 20 lakh for services. “If a person deals only in exempt items like vegetables or milk, the notice will be dropped after verification,” Joint Commissioner Meera Suresh Pandit. The clarification, however, did little to reassure traders.
By July 19, panic had begun to spread. Across Bengaluru, Mysuru, Davanagere and other districts, small traders stopped accepting UPI payments. In KR Market, one of Bengaluru’s busiest wholesale centres, vendors put up handwritten signs saying “UPI not accepted.” Traders reported that GST officers were demanding records such as purchase bills, vendor registration documents, and bank statements going back several years, records most small businesses did not maintain.
On July 20, the backlash intensified as trade associations warned that micro-enterprises were on the verge of collapse. Sectors ranging from bakeries and juice shops to autorickshaw drivers and meat sellers began reverting to cash. DB Pratap Shetty, president of the Karnataka State Association of Bakeries, said notices were being issued without checking whether the recipient even dealt in taxable goods. “Even people with daily UPI earnings of Rs 2,000 or Rs 3,000 are getting notices. Over years, these add up, and officials think we’re hiding something,” he said.
By July 23, the protests took an organised turn. Across Karnataka, tea and coffee vendors suspended the sale of milk-based drinks for a day. Workers affiliated with the Karnataka Karmika Parishat wore black bands, demanding the withdrawal of the notices. Ravi Shetty Byndoor, the Parishat’s president, threatened a statewide bandh on July 25 if the government did not roll back the action.
On the same day, Chief Minister Siddaramaiah convened a high-level meeting with the Commercial Tax Department and representatives from trader bodies. In a press briefing after the meeting, he said that businesses dealing in exempt goods like vegetables, fruits, milk, meat and bread would not be taxed. “These notices are not final demands. If the trader shows they only deal in exempt goods, the notice will be withdrawn,” he said. The CM also announced an amnesty scheme: pending GST dues and penalties from the past 2–3 years would be waived for small traders who register now and comply going forward.
Siddaramaiah defended the state’s digital tax strategy, pointing out that over 40% of transactions in Karnataka were digital. “We’re proud of that. But with digitalisation comes accountability. GST revenues are split between the Union and the state. The more we collect, the more we can invest in public welfare,” he said, urging traders not to abandon digital payments out of fear.
However, the situation had already given rise to a political slugfest. On July 23, Union Minister Pralhad Joshi criticised the Congress government, calling the GST notices a desperate move to extract money from the poor. “The Siddaramaiah government has run out of money after implementing its guarantee schemes. Now it’s targeting street vendors,” he said. BJP MLCs CT Ravi and N Ravi Kumar echoed this sentiment, accusing the state of sabotaging the Union’s Digital India campaign by penalising those who had adopted digital payments.
Meanwhile, the state administration began damage control measures. GST helplines were set up in key market areas such as KR Market and Malleswaram in Bengaluru. Shivamogga and Hubballi also saw similar helplines being set up. Officials also promised legal counselling and simplified registration processes.
On July 24, a number of trade associations, including bakery and condiments unions, announced that they were withdrawing their agitation in response to the CM’s assurances. However, the Karnataka Karmika Parishat said its members were excluded from the CM’s meeting and reiterated that the July 25 bandh would go ahead as planned.