Karnataka Bandh Over GST Notices, July 25; What exactly the GST issue

Bengaluru, July 23, 2025: Karnataka's small-scale traders, comprising bakeries, condiment shops, and street sellers, are vehemently opposing the Karnataka Commercial Taxes Department's "unscientific" Goods and Services Tax (GST) notices. These notices, which are aimed at businesses with UPI transactions surpassing ₹40 lakh per annum, have ignited a firestorm of anger, with traders claiming they are being unfairly subjected to tax demands reaching into the millions. In a show of solidarity, the Karnataka State Association of Bakeries, Condiments, and Small Enterprises has organized a protest rally at Freedom Park for July 24, with plans to escalate the situation to a statewide bandh on July 25.

UPI Transactions Under Scrutiny

The controversy arises from the tax department's rigorous action against unregistered traders whose UPI transactions have exceeded the GST registration limits of ₹40 lakh for goods and ₹20 lakh for services. By obtaining data from UPI service providers covering the financial years 2021-22 to 2024-25, the department has uncovered approximately 14,000 such instances in Bengaluru, a city that is home to more than 66,000 condiment and bakery businesses.
D.B. Pratap Shetty, President of the Karnataka State Association of Bakeries, Condiments, and Small Enterprises, has voiced his concern regarding recent tax notices. He stated that the vast majority of their transactions, upwards of 95%, are digital in nature. These notices, which are apparently solely based on UPI data, have instilled a sense of fear among the traders. Pratap Shetty brought to light several instances where modest businesses, such as those run by vegetable sellers and milk vendors, are facing tax demands that are significantly higher than their actual earnings.

Traders Demand Fair Taxation

The traders' grievance over UPI transaction misclassification leading to excessive taxes has intensified. Raghavendra Shetty, a Bengaluru-based bakery owner, pointed out the unfairness of being asked to pay ₹39 lakh in taxes for a business valued at ₹10 lakh. The traders' association is advocating for a full waiver of retrospective tax dues and suggesting a 1% flat tax under the presumptive tax scheme for enterprises with turnovers exceeding ₹40 lakh. 
The protests are planned to amplify progressively, with milk and milk-based product sales suspended on July 23rd and 24th, a stoppage of tobacco and cigarette sales to follow, and a complete closure of shops on July 25th. Ravi Shetty Byndoor, heading the Karnataka State Karmika Parishath, has cautioned the government with the threat of a campaign to damage UPI scanners if their concerns remain unaddressed.

Govt’s Response and Political Slugfest

The Commercial Taxes Department is standing by its recent issuance of notices to traders, asserting that the action was taken to enforce adherence to the Goods and Services Tax (GST) regulations, which were implemented in 2017. Commissioner Vipul Bansal has elucidated that the primary objective is to scrutinize their registration and compliance status, urging traders to provide the necessary documentation to substantiate their reported turnover figures.
The department has concurrently initiated a "Know GST" campaign, aimed at enlightening traders on the intricacies of the tax system. However, this educational endeavor seems to have had a negligible effect on assuaging the growing dissent among the business community.
This tax-related development has kindled a political inferno. Karnataka's Deputy Chief Minister D.K. Shivakumar has shifted the onus onto the GST Council, implying that they are responsible for the current predicament. On the other hand, Chief Minister Siddaramaiah, who is also in charge of the state's financial matters, has offered assurances to the traders, pledging to address their concerns at the upcoming GST Council meeting.
Meanwhile, the opposition Bharatiya Janata Party (BJP) has laid the blame squarely on the Congress-led state government, accusing them of mismanagement. MLA S. Suresh Kumar has cast doubt on the credibility of some of these notices, pointing out instances where small vendors have been claimed to have turnovers exceeding ₹7.5 crore. The controversy surrounding the GST enforcement continues to escalate, with each political party staking their claim and voicing their accusations.

Impact on Digital Payments And A Call for Dialogue

The crackdown has prompted numerous traders to shun UPI, resulting in widespread display of signs stating “No UPI, Only Cash” across various markets, including KR Market and Shivajinagar. This exodus from digital payments poses a challenge to the government's cashless economy initiative, as merchants express concerns about increased tax scrutiny. Manjunath, a condiment shop owner confronted with a 40 lakh tax demand, lamented, "We embraced UPI to support digital India, but now we feel targeted."
According to Etv Bharath report, With over 65,000 small businesses, such as bakeries, tea stalls, and petty shops, set to participate in the bandh, Karnataka may face significant disruptions in daily activities. The protest is backed by various cab and auto drivers' associations, and these businesses are calling on both the state and central governments to step in. Advocate Shakuntala Shetty, acting as legal counsel for the traders' association, emphasized, "Our stance is not anti-tax, but these imposed requirements are unattainable. What we seek is understanding rather than constant harassment."
Keywords: Karnataka GST issue, UPI transactions, small traders protest, Bengaluru bandh, GST notices, Freedom Park rally, presumptive tax scheme, Commercial Taxes Department, small businesses Karnataka, digital payments tax