Surprisingly, a street vendor's UPI transactions totaling Rs 40 lakh have caught the attention of tax authorities, triggering a GST investigation. We are witnessing a significant shift in how street vendors conduct business, as digital payments become increasingly common in India's informal sector. As a result, these substantial digital transactions have raised important questions about GST compliance and registration requirements.

Importantly, with the GST threshold limit set at Rs 20 lakh for services and Rs 40 lakh for goods, this case highlights the critical intersection between digital payment adoption and tax obligations. We understand that this investigation represents a broader trend of tax authorities monitoring digital payment trails, particularly in the informal sector where cash transactions traditionally dominated.

GST Compliance Requirements

In examining GST compliance requirements, we find that understanding registration thresholds is crucial for businesses. The law mandates different turnover limits based on the nature of business operations. For suppliers of goods, registration becomes mandatory when annual turnover exceeds Rs 40 lakh ^[1]. Furthermore, service providers must register once their turnover crosses Rs 20 lakh ^[1].

Understanding GST Registration Thresholds

We observe that special category states have different threshold limits. Additionally, certain businesses must register regardless of turnover, including:

• E-commerce operators

• Persons liable under reverse charge mechanism

Mandatory Documentation for Street Vendors

For GST registration, we require several essential documents. Consequently, businesses need to submit:

• PAN (Permanent Account Number)

• Aadhaar Card of the business owner

• Valid proof of business address

• Bank account details ^[1]

Penalties for Non-Registration

We must emphasize that non-compliance with registration requirements carries significant penalties. Subsequently, failing to register when liable attracts a penalty of 10% of the tax due or Rs 10,000, whichever is higher ^[2]. Moreover, businesses operating without registration face restrictions on input tax credit claims.

The GST department actively monitors digital transactions and bank records to identify unregistered businesses exceeding threshold limits ^[1]. Therefore, proactive compliance is essential to avoid penalties and legal complications. Under the CGST Act, authorities can scrutinize businesses regardless of their registration status ^[1].

Case Investigation Details

Initially, we discovered that the GST department's investigation stems from comprehensive transaction reports obtained from prominent payment gateways, Razorpay and PhonePe ^[3].

Transaction History Analysis

Our analysis reveals that the department's investigation focused on digital payment records that demonstrated significant business activity. Notably, these transactions indicated that the vendor's turnover had exceeded the prescribed threshold limit for GST registration ^[3]. We found that the digital payment trails have made it considerably easier for authorities to measure statistics and track tax compliance ^[4].

Digital Payment Trail Evidence

Evidently, the rise in digital transactions has created a robust audit trail. The payment data shows:

• Transaction records from multiple UPI platforms

• Detailed payment history through authorized gateways

• Chronological documentation of business activities

Official Notice Components

Accordingly, the GST notice issued contains specific elements addressing the vendor's non-compliance. The notice primarily serves as a summons, requesting the vendor to present their case before the department ^[3]. We understand that such notices typically cite transactions reported by UPI-based merchants that reflect substantial turnover—above the prescribed threshold—yet show no corresponding GST registration ^[4].

The investigation process aligns with standard protocols, where information sharing between banks and tax authorities acts as a verification mechanism ^[4]. Furthermore, the Suspicious Financial Transaction (SFT) reports from banks serve as additional evidence in such investigations ^[4]. In cases where businesses fail to register despite crossing the threshold, they face several consequences, although the current notice is specifically a summons for explanation rather than a demand order ^[3].

Tax Implications for Street Vendors

We examine the complex tax implications facing street vendors in light of recent digital payment monitoring. Nonetheless, understanding these obligations helps ensure compliance while maximizing available benefits.

Calculating Tax Liability

Under the GST framework, we find that street vendors must calculate their tax liability based on their total turnover. Indeed, for those dealing primarily in goods, the standard GST rate applies once turnover exceeds Rs 40 lakh ^[5]. Meanwhile, service providers face a lower threshold of Rs 20 lakh ^[5]. The tax calculation follows a simple formula: GST Amount = (Tax Rate/100) x Amount ^[6].

Input Tax Credit Benefits

We recognize several advantages available through Input Tax Credit (ITC):

• Credit claims possible within 180 days of invoice date ^[7]

• Reduction in cascading tax effects ^[2]

• Lower cost of business operations ^[2]

• Simplified tax compliance through online filing ^[7]

Payment Schedule Requirements

Likewise, we observe strict payment schedules for GST compliance. For businesses with turnover exceeding Rs 5 crore, monthly returns are mandatory ^[1]. However, those with lower turnover can opt for quarterly returns under the QRMP scheme, though tax payments remain monthly ^[1]. Interest charges of 18% per annum apply for delayed payments ^[1].

For street vendors transitioning to formal tax systems, we note that proper documentation becomes essential. The GST framework mandates maintaining detailed transaction records, especially since UPI payments exceeding Rs 50,000 are now tracked for tax purposes ^[8]. Furthermore, businesses must file returns even during zero-transaction periods ^[1].

In cases of non-compliance, we find that penalties may include interest charges and late fees of Rs 100 per day per Act, reaching up to Rs 5,000 ^[1]. Hence, timely compliance and accurate record-keeping become crucial for avoiding financial burden.

Compliance Solutions

For street vendors facing GST compliance challenges, we offer practical solutions to simplify the registration and maintenance process. Straightaway, let's explore the essential steps and best practices for ensuring proper compliance.

GST Registration Process

We understand that the registration process has been simplified through online platforms. Altogether, the process involves these key steps:

1. Visit the GST portal

2. Submit required documents

3. Verify mobile and email

4. Receive Application Reference Number

5. Track application status online ^[9]

Record Keeping Best Practices

Generally, we maintain records at our principal place of business, as mandated by GST regulations. The following documents must be preserved for 72 months ^[3]:

• Production or manufacture records

• Inward and outward supply details

• Stock inventory documentation

• Input tax credit records

• Output tax payment proof

• Bank statements and transaction records

Professional Tax Assistance Options

Soon after registration, we might need professional guidance to ensure compliance. Presently, several support options exist through:

PM SVANidhi scheme offers comprehensive assistance for street vendors, undoubtedly making compliance easier. This program provides working capital loans up to ₹10,000 with interest subsidies of 7% per annum ^[4]. Overall, the scheme has processed nearly 2 million applications ^[4], demonstrating its effectiveness in supporting vendor formalization.

For digital compliance, we recommend utilizing GST software that automates calculations and maintains records. These tools integrate with existing accounting systems and provide real-time updates on regulatory changes ^[10]. Furthermore, the software helps generate accurate returns and maintains audit trails of all transactions.

Through Common Service Centers (CSCs), we can access assistance for registration and return filing ^[4]. These centers provide guided support, ensuring that even those unfamiliar with digital platforms can comply with GST requirements effectively.

Conclusion

All things considered, this case highlights significant changes in India's street vending sector, where digital payments now create clear transaction trails for tax authorities. Street vendors crossing annual turnovers of Rs 40 lakh for goods or Rs 20 lakh for services must register under GST laws. Therefore, proper documentation and timely compliance become essential steps for avoiding penalties and legal complications.

Digital payment adoption, while beneficial for business growth, consequently brings increased tax scrutiny. Above all, street vendors should maintain detailed transaction records and seek professional guidance when needed. PM SVANidhi scheme offers valuable support through working capital loans and compliance assistance, making the transition to formal business practices smoother for street vendors.

This investigation serves as a reminder that digital transactions, though convenient, require careful attention to tax obligations. Street vendors adapting to these changes can benefit from various support systems, including Common Service Centers and automated GST software solutions, ensuring their businesses remain compliant while growing in the digital economy.

References

[1] - https://cleartax.in/s/gst-returns
[2] - https://www.bankbazaar.com/tax/gst-calculator.html
[3] - https://cleartax.in/s/gst-accounts-record
[4] - https://www.india.gov.in/spotlight/pm-street-vendors-atmanirbhar-nidhi-pm-svanidhi
[5] - https://razorpay.com/learn/gst-rules-benefits-startups-india/
[6] - https://www.hostbooks.com/in/hb/gst-calculator/
[7] - https://www.hdfclife.com/insurance-knowledge-center/tax-saving-insurance/input-tax-credit-under-gst
[8] - https://cleartax.in/s/tax-on-upi-transactions
[9] - https://www.indiafilings.com/learn/step-by-step-guide-to-gst-registration-for-businesses/
[10] - https://www.oxyzo.in/blogs/digital-tools-for-gst-compliance-in-smes/81996