GST applies to taxable turnover, even if paid in cash: Karnataka Commercial Taxes Dept clarifies

A convenience store displaying various snacks and beverages, with a sign stating 'ONLY CASH NO UPI PAYMENT' prominently placed on the counter.

The clarification issued by the Karnataka Commercial Taxes Department on July 17 regarding GST notices and mandatory registration is in full alignment with the provisions of the Central Goods and Services Tax Act, 2017. Here’s the legal basis and interpretation of the matter:

Legal Provision: Mandatory GST Registration under Section 22

Section 22(1) of the CGST Act, 2017 states:

“Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds forty lakh rupees in case of a supplier engaged exclusively in the supply of goods, and twenty lakh rupees in all other cases.“

🔹 Key Thresholds:

  • ₹40 lakh for suppliers of goods
  • ₹20 lakh for suppliers of services

💡 These thresholds apply regardless of the mode of receiving payment (cash, UPI, POS, etc.).

Consideration and Mode of Payment

The mode of payment (e.g., UPI, cash, card) does not affect tax liability under GST. What is taxed is the “consideration” received for a supply, as defined in Section 2(31) of the CGST Act:

“Consideration in relation to the supply of goods or services or both includes— (a) any payment made or to be made, whether in money or otherwise…“

✅ So, payments received through UPI or any digital mode are taxable if the supply is taxable and the threshold is crossed.

Composition Scheme

As per Section 10 of the CGST Act:

  • Businesses with aggregate turnover up to ₹1.5 crore may opt for the Composition Scheme.
  • Composition rate for traders is 1% (0.5% CGST + 0.5% SGST) on turnover in the state.
  • This scheme cannot be applied retrospectively to periods before obtaining registration.

Department’s Advisory Is Justified

  • Discontinuing UPI to evade GST liability is not legally valid.
  • GST registration is not linked to the mode of payment, but aggregate turnover.
  • Notices are being issued based on available data (digital transactions, etc.) to verify turnover.

Conclusion

Non-compliance may lead to recovery actions under relevant provisions.Amid a statewide shutdown call by small traders on July 25 over GST notices on digital payments, the Karnataka Commercial Taxes Department on July 17 clarified that GST registration is mandatory for businesses with annual turnover above Rs 40 lakh (goods) or Rs 20 lakh (services), regardless of payment mode.

If your aggregate turnover crosses the specified limit (₹20L/₹40L), you must register under GST regardless of UPI, cash, or any other payment mode.

Composition scheme is available prospectively for small taxpayers.