Cash, UPI-based trade by unregistered, small biz under fresh GST scrutiny
July 18, 2025
While some states like Karnataka have sent a spate of notices to such unregistered vendors and small businesses, other states are also in the process of sending similar notices, sources said.
With multiple instances of high UPI and cash-based transactions from unregistered small businesses and service providers being recorded, central and state Goods and Services Tax (GST) authorities are learnt to have reached out to payment aggregators, seeking data of those who received payments exceeding Rs 20 lakh per year.
While some states like Karnataka have sent a spate of notices to such unregistered vendors and small businesses, other states are also in the process of sending similar notices, sources said.
While many states are undertaking their own data analysis on cash-based and unregistered trade, central GST authorities have asked their field officers to identify sectors that are prone to cash transactions, conduct a geographical mapping to identify specific markets for informal economic activity, and undertake targeted outreach programmes to engage with local business associations and nudge them to register under GST.
A missive sent by central GST authorities to its field officers on June 24 noted that a part of the economic activity still continues to operate outside the formal tax framework, particularly in sectors and markets where cash transactions dominate. After the missive, central GST officials in several zones are learnt to have sought data from payment platforms to identify the unregistered GST businesses that are eligible to be brought in the taxation net. However, no notice has been sent yet from the central GST authorities, a source said.
“Cash-based transactions and unregistered trade are under enhanced scrutiny. GST officers have reached out to UPI payment platforms to get data from the recipient’s side where they have received funds exceeding the GST registration limit, say, Rs 20 lakh for service providers. Such data is now going to be analysed and notices will be sent to these businesses who are either unregistered or are paying unrealistically low GST, even if they are registered,” a source told The Indian Express.
The central GST officers in the field have been asked to submit the list of sectors identified for cash-prone transactions and the specific markets for informal economic activity along with details about outreach programmes by July 15. They have also been asked to provide the number and percentage of taxpayers that paid tax in cash of less than Rs 5,000 in the financial year 2024-25.
The GST authorities are undertaking data analysis to identify taxpayers with disproportionately low tax paid in cash in previous financial years, especially in areas with large informal markets and high cash transactions.
“There is a possibility of tax evasion as it appears that these taxpayers are showing unrealistically low value addition which is not possible except in cases involving inverted duty structure,” an official said.
The heightened scrutiny and the spate of recent notices to small businesses have had a fallout — many small vendors are now refusing to take UPI payments for fear of being tracked by the tax authorities.
Smaller businesses are under greater scrutiny of the GST authorities as most stay unregistered, sources said. The authorities have directed integration of these informal segments into the GST system, underlining the need for a systematic and targeted approach. The attempt is to nudge these taxpayers towards the formal economy, and bring those in the informal economy under the ambit of the indirect tax regime.
Formalising the informal economy and expanding the taxpayer base are critical steps toward enhancing revenue collection, ensuring a level playing field for all businesses, and promoting long-term economic growth, the directive to the field officers stated.
GST registration is mandatorily required if small businesses have all-India aggregate turnover above Rs 40 lakh in case of supply of goods (Rs 20 lakh if business is in the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand) and Rs 20 lakh in case of supply of services or in case of mixed supplies (Rs 10 lakh if business is in states of Manipur, Mizoram, Nagaland and Tripura).
State and central GST authorities are also focused on expanding the tax base and hence, have been directed to take action in market segments where they have not taken any enforcement action earlier. For instance, smaller businesses engaged in building interiors, furniture suppliers, food services will face closer scrutiny from GST authorities, sources said.
A perceptible slowdown in GST revenues has become a key concern for central and state governments, especially ahead of a major proposed overhaul in the indirect tax regime. Any major tweak in the tax slabs and rates will need careful consideration on the revenue front and therefore, such measures for an expansion of the tax base have gained importance, an official said.
[The Indian Express]
