Bengaluru vendors ditch UPI as GST crackdown triggers protest

India’s UPI network processes over 650 million transactions daily, but in Bengaluru, many small vendors are suddenly going cash-only. In a surprising reversal in India’s digital payments capital, thousands of dairy, bakery, and cigarette sellers have removed their UPI QR codes after receiving commercial tax notices.

The Karnataka Labour Council has issued a state-wide warning: if the tax pressure continues, they will shut down shops across the state. A mass protest has been called at Bengaluru’s Freedom Park on July 25.

With over 18.7 billion UPI transactions — worth Rs 25 trillion — in May 2025 alone, the move has shocked both customers and policymakers. But vendors say they have no choice.

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UPI notices spark shutdown call

Commercial tax authorities have reportedly sent notices to 4,000–5,000 small vendors, asking them to pay GST based on their UPI transaction volumes. This has triggered widespread panic among informal businesses. In response, shopkeepers have taken down QR codes and put up handwritten signs: “No UPI. Only cash.”

Dr Ravi Shetty Byndoor, President of the Karnataka Labour Council, warned: “If no solution is found for this issue, we will ban milk and milk products on July 23 and 24 and also shut down all shops and establishments on the 25th. On that day, lakhs of people will gather at Freedom Park to stage an intense protest. We will carry out a fierce agitation.”

The sudden regulatory action has disrupted daily business for thousands in Bengaluru, with implications for India’s broader cashless economy.

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Vendors speak out

Santhosh, a vendor affected by the tax notices, explained the situation: “UPI deactivation has become unavoidable. Since they are issuing notices based on transaction history, we are forced to deactivate UPI. They are asking us to pay tax based on total transaction amount. However, an individual's income should be taken into account before making that payment. It doesn’t make sense to us. Around 25 people in our friend circle have received notices.”

Vendors argue that the government is ignoring the informal nature of their business, where actual income is often much lower than transaction totals. Many have taken loans — including gold loans — to reinvest in their businesses, and are now faced with tax bills they cannot afford.

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GST on milk?

Another vendor, Nagraj, raised a basic profitability concern: “We don't want PhonePe. If we sell one litre of milk for Rs 52, we earn a profit of Re 1. What should we do if we have to pay 18 per cent GST on Rs 52?”

This statement underscores the mismatch between digital transaction data and actual margins. The vendors say that taxing them on turnover without considering actual earnings could destroy their businesses.

At a time when the rest of India races ahead into a digital future, Bengaluru’s small traders may be sounding the first serious alarm about the costs of going cashless — especially when tax policies lag behind ground realities.

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