Impact of GST on Small & Medium Businesses (SME’S)
A REPORT
SUBMITTED TO
NWT DEGREE COLLEGE DEHRADUN
Affiliated to HEMVATI NANDAN BAHUGUNA GARHWAL UNIVERSITY
(A CENTRAL UNIVERSITY)
FOR THE AWARD OF DEGREE OF
BACHELOR OF COMMERCE ([Link])
Under the Guidance of Submitted By:
Dr. RASHI ALAGH MOHAMMAD ARSH
Department of Commerce [Link] 5th Semester
Srinagar Garhwal (Uttarakhand)
2025
SUPERVISOR’S CERTIFICATE
It is certified that the project entitled “Impact of GST on Small & Medium
Businesses (SME’S) ” has been submitted by PRIYANSHU NEGI for the Degree of Bachelor of
Commerce is a bonafide piece of research work carried out by MOHAMMAD ARSH under my
guidance and supervision. The candidate has completed the study in the stipulated time period.
Results mentioned in the project are based on the studies carried out by--, under my supervision.
This is an original piece of research work and has not been submitted in part/full to any
University or Institution.
I am satisfied with the originality of the work presented and recommend
this project to be submitted before the adjudicators for the award of Bachelor of Commerce
Degree.
Dr. RASHI ALAGH
DECLARATION
I, hereby declare that the project work entitled “Impact of GST on Small & Medium
Businesses (SME’S) ” submitted by me for the degree of Bachelor of Commerce, is my own
work and it has not been submitted previously.
I, further declare that this study is originally carried out by me and there has not been any part of
it published anywhere without acknowledgement or any part submitted previously to any
university for the award of any degree, diploma or title recognition before. The books and
journals which have been consulted for the conduction of this research work have been listed in
the bibliography.
MOHAMMAD ARSH
ACKNOWLEDGEMENT
I take this opportunity to express my heartfelt gratitude to all those who have contributed to the
successful completion of my project titled “Impact of GST on Small& Medium Businesses
(SMEs)”.
First and foremost, I would like to express my sincere thanks to Dr. Rashi Alagh, Assistant
Professor, for her valuable guidance, encouragement, and constant support throughout the course
of this study. Her expertise and insightful feedback helped me immensely in shaping this
research.
I also extend my gratitude to the Department of Commerce, NWT COLLEGE, for providing the
necessary academic resources and a conducive environment to carry out this project.
Lastly, I would like to thank my family, friends, and all the individuals who indirectly
contributed to the completion of this project through their support and encouragement.
MOHAMMAD ARSH
TABLE OF CONTENTS
[Link] Contents
1 INTRODUCTION
2 REVIEW OF LITERATURE
3 RESEARCH METHODOLOGY
4 ANALYSIS &INTERPRETATION
5 CONCLUSION
6 REFERENCES
Impact of GST on Small & Medium Businesses (SME’S)
INTRODUCTION
The Goods and Services Tax(GST), implementedonJuly1, 2017, is one of the most significant tax
reforms in India. It replaced a multi-layered indirect tax structure with a single, unified tax
system. While GST aimed at improving tax compliance, eliminating cascading taxes, and
integrating the Indian market, its impact on small businesses has been mixed and multifaceted.
Since its implementation on July 1, 2017, GST has been a significant change in the Indian
taxation system, affecting businesses of all sizes. India had several erstwhile indirect taxes such
as service tax, Value Added Tax (VAT), Central Excise, etc., which used to be levied at multiple
supply chain stages. Some taxes were governed by the states and some by the Centre. There was
no unified and centralized tax on both goods and services. Hence, GST was introduced. Under
GST, all the major indirect taxes were subsumed into one. It has greatly reduced the compliance
burden on taxpayers and eased tax administration for the government.
Components of GST
There are several components of GST that can streamline taxation. It is important to understand
these components for both businesses and individuals -
• Central Goods and Services Tax (CGST)- It deals with the Central Government taxation. The
revenue collected under CGST is given to the Central Government.
• State Goods and Services Tax (SGST) - SGST deals with GST at the state level. The revenue
collected from SGST is given to the respective state governments.
• Integrated Goods and Services Tax (IGST) -This is used for interstate transactions. The
Central Government collects IGST and later distributes it to the states. In other words, IGST
isdivided into two partsCGSTand [Link] receives its respective parts.
• Union Territory Goods and Services Tax (UTGST) -This is similar to SGST. The only
difference is that it is applicable in union territories. The tax collected under UTGST is given to
the Union Territories.
Understanding GST Threshold Limits
GST threshold limits refer to the minimum turnover requirements above which businesses must
register for GST and comply with its regulations. These limits vary based on the nature of the
business and the geographical location within India. As of the latest update, the GST threshold
limits are as follows:
1. For Goods:
• ₹40lakhsfor normal category states
• ₹20lakhs for special category states
2. For Services:
• ₹20lakhsfor normal category states
• ₹10lakhsforspecialcategorystates
3. Composition Scheme:
• ₹1.5croresforgoods(₹75lakhs for special category states)
• ₹50lakhs for service providers
Benefits of GST Threshold Limits for SMEs
1. Reduced Compliance Burden: SMEs with turnover below the threshold limits are not required
to register for GST, which significantly reduces the compliance burden. This exemption allows
small businesses to focus more on growth and less on complex GST compliance procedures.
2. CostSavings: Avoiding GST registration translates into cost savings for SMEs as they do not
have to hire tax professionals or invest in accounting software for GST compliance.
3. Encouragement for New Businesses: Lowering the threshold for new and small businesses
fosters entrepreneurship by reducing initial regulatory hurdles. This encourages more individuals
to start their own businesses without the fear of immediate tax compliance.
4. Composition Scheme Benefits: SMEs with turnover within the composition scheme limits can
opt for a simplified tax regime with lower tax rates and minimal compliance requirements. This
scheme is particularly beneficial for small traders, manufacturers, and service providers.
Challenges Faced by SMEs due to GST Threshold Limits
1. Competitive Disadvantage: SMEs operating below the GST threshold may face a competitive
disadvantage as they cannot claim Input Tax Credit (ITC) on their purchases. This makes their
products relatively more expensive compared to those offered by larger businesses that can claim
ITC.
2. Growth Limitations: To stay below the threshold and avoid the complexities of GST
registration, some SMEs may deliberately limit their growth and expansion, which can hinder
their long-term potential.
3. Supply Chain Disruptions: Businesses that prefer dealing with GST-registered suppliers to
claim ITC may avoid transacting with unregistered SMEs, leading to potential supply chain
disruptions and loss of business opportunities for the latter.
4. Compliance Complexity: Although the threshold exemption reduces compliance, SMEs nearing
the threshold limit need to constantly monitor their turnover to avoid unintended non-
compliance. This monitoring can add to the administrative workload.
Government Initiatives to Support MSMEs Under GST
Recognizing the challenges MSMEs face, the government has introduced measures to facilitate
GST compliance and reduce its impact:
• Composition Scheme: This scheme is applicable to MSMEs which have a turnover of up to ₹1.5
crore, and pay a flat tax rate with reduced compliance.
• Relaxed Filing Rules: Compliance burden has been shifted to smaller businesses, allowing
quarterly filings instead of monthly returns.
• Awareness and Training Programs: The government and industry bodies have been training it
to educate MSMEs ofthe procedures to follow GST filing and compliance.
• GST Refund Acceleration: Steps have been taken to expedite GST refunds, especially for
export-oriented MSMEs, to resolve liquidity concerns.
The initiatives are aimed at countering the impact of GST on MSME and making sure that the
benefits of GST are more than what the small businesses face.
GST implementation has had a considerable impact on businesses in
India, particularly on small and medium sized businesses (MG & Babu, 2021). With the
implementation of GST, the tax burden on small and medium enterprises (SMEs) has been
lowered, and the unified tax system has simplified the tax structure. However, increased
compliance cost, difficulties in availing input tax credit, cash flow constraints etc., lead to low
compliance with GST among SMEs (Bhalla et al,2023).Small and medium enterprises, along
with corporations, play a crucial role in the Indian economy. Small firms are major employment
providers in India and they make significant contribution to economic growth, national
prosperity and innovation (Nikita and Aashika, 2024). Therefore, it is essential forthe
government of India to support SMEs grow further by helping them overcome the challenges
they face (Das &Rangarajan, 2020). GST raises many challenges to Indian SMEs. Of these
challenges, issues that Indian SMEs face in terms of GST compliance are critical. In the present
research, the researcher aims to analyse the GST compliance issues in Indian SMEs in order to
suggest policy makers strategies to address these challenges and thereby fostering the growth of
and sustainability of SMEs in the country.
MSME GST compliance
in India involves mandatory registration based on turnover, timely filing of specific returns
(GSTR-1, GSTR-3B), potential benefits under the Composition Scheme or the Quarterly Return
Monthly Payment (QRMP) scheme, and adherence to invoicing and record-keeping rules.
Key Compliance Requirements
• GST Registration:
o Mandatory for businesses supplying goods with an annual aggregate turnover exceeding ₹40
lakh.
o Mandatory for businesses supplying services with an annual aggregate turnover exceeding ₹20
lakh.
o Lower thresholds (₹20 lakh for goods, ₹10 lakh for services) apply to special category states.
o Registration is mandatory regardless of turnover for businesses involved in inter-state supplies or
selling through e-commerce operators.
o Registration is completed online via the official GST portal.
• Return Filing:
o GSTR-1 (Outward Supplies/Sales): Filed monthly (for turnover > ₹5 crore) by the 11th of the
next month, or quarterly (for turnover up to ₹5 crore under the QRMP scheme) by the 13th of the
month after the quarter.
o GSTR-3B (Summary Return & Tax Payment): Filed monthly (by the 20th of the next month)
or quarterly (by the 22nd or 24th of the month after the quarter, depending on the state).
o GSTR-9 (Annual Return): Mandatory for all registered taxpayers, due by December 31st of the
following financial year. Businesses with turnover up to ₹2 crore are often exempted from
mandatory audit requirements.
• Tax Payment:
o Tax liability for regular taxpayers must be paid monthly via GSTR-3B.
o Taxpayers under the QRMP or Composition schemes pay tax monthly (via Form PMT-06) or
quarterly (via Form CMP-08), respectively.
• Invoicing and Records:
o Issue GST-compliant invoices containing the supplier's and recipient's GSTIN, HSN/SAC codes,
tax rates, and tax amounts.
o Generate e-way bills for inter-state movement of goods exceeding ₹50,000 in value.
o Maintain all records (invoices, receipts, etc.) for at least 72 months (six years).
• Input Tax Credit (ITC):
o Reconcile purchase records with the auto-generated GSTR-2B statement to claim eligible ITC
and avoid discrepancies.
Schemes for MSMEs
• Composition Scheme: Available to businesses with a turnover up to ₹1.5 crore (₹75 lakh for
special category states). Allows payment of GST at a lower, flat rate (e.g., 1-6% depending on
business type) but prohibits claiming ITC or making inter-state sales.
• Quarterly Return Monthly Payment (QRMP) Scheme: Businesses with turnover up to ₹5
crore can opt for this to file returns (GSTR-1 and GSTR-3B) quarterly while still making
monthly tax payments.
Consequences of Non-Compliance
Failure to comply with GST regulations can lead to:
• Penalties and interest charges (e.g., ₹50 per day for late filing of returns, 18% interest p.a. on
overdue tax payments).
• Blocked input tax credit.
• Disqualification from government schemes and access to formal credit.
• Reputational damage and potential legal complications.
REVIEW OF LITERATURE
Singh & Kumar (2021): “GST Compliance Challenges for MSMEs in India” This study
explored the challenges MSMEs face in complying with GST regulations, such as dealing with
frequent changes in GST rules, a complex classification system for goods and services, and the
high costs of digital invoicing and training. MSMEs were struggling with understanding the
nuances ofthe tax systemand faced difficulties during the transition phase.
Choudhury & Singh (2021): “Impact of GST on MSMEs in the Manufacturing Sector”
This research focused on the manufacturing sector within MSMEs and found that GST reduced
the cascading taxeffect, improving cost efficiencyin production. However, the study highlighted
that smaller MSMEs still faced liquidity problems and higher operational costs related to GST
compliance.
Pandey & Yadav (2021): “GST and MSMEs: A Comparative Analysis of Pre- and Post-
GST Effect”s This comparative study analyzed MSME performance before and after the
introduction of GST. The study concluded that while GST helped reduce tax burdens and
enabled better market access, initial compliance challenges such as delayed refunds and high
costs for compliance were significant barriers for MSMEs.
Sharma & Verma (2022): “Impact ofGST on Smalland MediumEnterprises (SMEs) in
India” This study analyzed the impact of GST on SMEs and found that GST simplified the
indirect tax structure. However, SMEs faced initial difficulties due to compliance requirements
and digitalinvoicing mandates. Over time, the studynotedthat increased digital adoption led to
improved transparency, better control over tax evasion, and more efficient business operations.
Despite these improvements, delayed tax refunds and high operational costs remained challenges
for SMEs.
Aggarwal & Gupta(2022): “GST and Its Effect on MSME Supply Chains in India ” This
study explored the effect of GST on MSME supply chains, focusing on inter-state trade and raw
material sourcing. The findings suggested that GST simplified supply chains by eliminating
state-level taxes and reducing costs associated with inconsistent tax rates across regions.
However, MSMEs still struggled with the administrative burden of complying with GST
documentation requirements.
Patel & Mehta (2023): “GST and Financial Health of MSMEs: An Empirical Study”The
research focused on the financial health of MSMEs, specifically their cash flow, profitability,
and access to credit post-GST implementation. While MSMEs experienced liquidity issues in the
short term due to delayed input tax credits and upfront compliance costs, the long-term benefits
were significant. These included improved access to credit and reduced cascading taxes,
ultimately improving financial health.
Desai & Joshi (2023): “GST Compliance and Technology Adoption in MSMEs” This study
examined the role of technology adoption in improving GST compliance. It found that MSMEs
that adopted technology, such as cloud-based accounting and GST-compliant invoicing software,
saw improvements in tax compliance and business operations. However, the high initialcost
ofadopting such technologies was a challenge for many smaller MSMEs.
Rao & Ramesh (2024): “GST’s Role in the Growth of MSMEs in the Post-GST Era”This
research assessed the role of GST in the growth of MSMEs in the post-GST era. The study found
that GST helped MSMEs expand their market reach, especially across state borders, due to a
uniform tax structure. However, smaller MSMEs continued to face challenges in adopting GST
compliance processes, limiting their ability to fully capitalize on the opportunities.
Bose& Verma (2024):“Impact of GST on MSME Cash Flows and Profitability”
This study analyzed the impact of GST on MSME cash flows and profitability. It found that
MSMEs faced short-term liquidity problems due to delayed input tax credits and higher
operational costs. However, over time, MSMEs were able to benefit from reduced production
costs and increased access to interstate trade, leading to improved profitability.
Kumar & Soni (2025): GST Rate Rationalization and Its Effect on MSMEs in 2025
This study examined the proposed GST rate rationalization in 2025, focusing on its potential
effects on MSMEs. The authors found that simplifying the GST structure into fewer tax slabs
could reduce compliance costs and tax disputes, benefiting MSMEs. Additionally, the rate
rationalization was expected to make the tax system more predictable, enhancing MSME
competitiveness and profitability. However, small MSMEs with limited resources might still
struggle with adapting to the new compliance norms.
Research Methodology
Research Design
This study will be descriptive and exploratory in nature, primarily focusing on analyzing
existing data and drawing insights about the impact of GST on MSMEs. The aim is to
understand compliance patterns, identify challenges, and suggest improvements based on current
trends.
• Descriptive: Using existing secondary data (e.g.,GST registrations, GSTpayments, growth rates)
to describe trends in MSME GST compliance.
Data Collection Methods
Type of Data– Secondary Data
Secondary data will be sourced from reliable external publications, research studies, and
government reports to supplement the primary data and provide a broader context.
1. Government Reports
o Source: Ministry of Finance, Reserve Bank of India (RBI), and GSTN (GST Network).
o Purpose: To access official data on GST revenue, compliance trends, and sectoral contributions
to GST collections.
o Key Data:
▪ GST Revenue Reports: and annual data on GST revenue collection from different sectors.
▪ GST Registration Data: Number of MSMEs registered under GST and growth trends post-
implementation.
2. Economic Research Papers
o Source:Research papers from institutions like NITI Aayog, IMF, RBI,and academic journals.
o Purpose: To access published research studies that provide insights into the broader economic
impact of GST.
o Key Data:
▪ Sectoral Economic Performance: Studies on how GST has affected specific sectors in terms of
growth, efficiency, and cost structure.
▪ GDP Growth Trends: Research on the effect of GST on India's GDP growth rates, with a
particular focus on MSME-heavy sectors.
3. Industry Reports
o Source: Industry bodies like FICCI, CII, ASSOCHAM, and market research organizations.
o Purpose: To obtain industry-specific reports and insights on GST's impact, with a focus on
MSMEs in different sectors.
o Key Data:
▪ Sectoral GST Impact: Reports that analyze the effects of GST on manufacturing, retail,
services, and agriculture.
4. Newspaper& Journal Articles
o Source: Leading business and financial news outlets, such as The Economic Times, Business
Standard, and academic research journals.
o Purpose: To provide timely insights and public opinions on GST's impact on businesses and
consumers.
o Key Data:
3.2Secondary Data Collection
1. GST Registration Data:
o Analyze data from Table 1onMSMEGSTregistrations over the years(2020- 2025) to identify
trends and growth patterns.
o Assess regional and sectoral differences in the adoption of GST by MSMEs.
2. GST Payment Data:
o Analyze Table2 to assess GST payment trends(FY23-FY25) and identify any factors influencing
fluctuations.
o Investigate factors behind the decrease inGSTpaymentsinFY24andthe projected recovery in
FY25.
o Comparative Analysis: Compare GST payment data across different sectors to identify the
sectors most affected by compliance costs.
3. Impact Data:
o From Table3 and Table4, assess the positive and negative impacts of GST on MSMEs.
▪ Positive impacts: Market expansion, ease of tax compliance , access to formal credit, and input
tax credit benefits.
▪ Negative impacts: Compliance complexity, working capital issues, and technology adoption
gaps.
Key Statistics (2024–25):
o Analyze key statistics like MSME GST registrations, compliance rates, export growth, and
technology adoption to understand how MSMEs are adapting to GST in terms of digitalization
and compliance.
Data Analysis Techniques
Trend Analysis
• Purpose: To observe fluctuations and trends in the number of MSMEs registered under GST and
GST collections over time.
• Data Points: GST registration data and GST paid by MSMEs for different years.
• Tools: Excel was used to plot data overtime and identify any significant changes, such as the dip
in FY24 and the projected increase in FY25.
Comparative Analysis
• Purpose: To compare the positive and negative impacts of GST on MSMEs.
• Methodology: Key insights from various sources, including reports and surveys, were compared
to identify growth areas and challenges faced by MSMEs under GST.
• Tools: Excel and tables were utilized for comparing impacts and presenting both positive and
negative aspects in an accessible format.
Data Visualization
• Purpose: To present complex data in a simple, interpretable format.
• Methodology: Graphs and charts were created to visually represent trends, like the number of
MSMEs registered and GST collection rates.
• Tools: Excel was used to generate line charts, bar graphs, and pie charts to highlight key trends.
ANALYSIS & INTERPRETATION
Table1: Number of MSMEs Registered under GST
Number of MSMEs
Year Registered under GST Key Observations
The launchofUdyamRegistrationPortalinJuly2020
2020 ~1.5crore(15 million)
contributed to the formalization of MSMEs.
Steady increase in registrations as MSMEs began to
2021 ~2.5crore(25 million) comply with GST requirements and took advantage of
government incentives.
Significant growth as more businesses formalized post-
2022 ~3crore(30million)
GST and took advantage of input tax credits.
~3.16crore(31.6 million) Continued growth, with a surge in formal MSMEs due to
2023
simplified registration process under Udyam.
Projected increase as GST-driven incentives and
Estimated over 3.2
2024 simplification of processes led to more MSMEs
crore(32 million)
registering.
2025 Expectedtoreach3.5 Further growth due to continued adoption of GST and
(Projection) crore (35 million) government initiatives for MSME development.
Key Trends:
• GST Simplification : The unified tax structure and easier registration processes, especially
through the Udyam portal, contributed to a higher number of MSMEs registering.
• Government Incentives: Benefits such as input tax credits, financial schemes, and access to a
broader market have encouraged more businesses to formalize.
• Growth of MSMEs: With GST’s benefits in reducing the cascading tax effects and promoting
transparency, MSMEs have been more inclined to register and expand.
Table2–GST COLLECTION RATES
Financial Year GST Paid by MSMEs (in Rs crore)
FY23 5,00,000
FY24 4,70,000
FY25 5,50,000
Source:[Link]
Explanation:
1. FY 23 (Rs.5,00,000):
o In the financial year 2022-2023 (FY23), MSMEs paid a total of Rs. 5,00,000 crore in GST. This
amount represents the GST paid on the goods and services provided by MSMEs throughout that
year.
2. FY 24(Rs.4,70,000):
o In FY24, the amount dropped to Rs. 4,70,000 crore. This reduction could indicate various factors
such as a decrease in production, lower sales, or the adoption of more effective tax planning and
management strategies by MSMEs, potentially due to GST rate adjustments or improved credit
utilization.
3. FY 25(Rs.5,50,000):
o In FY25, GST payments by MSMEs increased to Rs. 5,50,000 crore. This rise could suggest an
improvement in business conditions for MSMEs, potentially driven by a recovery in demand,
better business activity, or the expansion of businesses under the revised three-tier GST
structure, which could make it easier for them to comply and increase sales across regions.
Key Insights:
• The decrease in FY24 could reflect challenges faced by MSMEs, such as economic slowdowns,
reduced demand, or challenges in adapting to the tax structure.
• The increase in FY25 shows a potential rebound, possibly due to better adaptation to the GST
system and higher business activity, especially with the GST rate rationalization and more
streamlined compliance processes in place. The proposed rationalization would make it easier for
MSMEs to access input tax credits and reduce cascading taxes, boosting their overall financial
health.
GST Collection Trends:
• GST payments from MSMEs showed fluctuations between FY23andFY25,with an overall
increase expected in FY25.
• ThedecreaseinFY24could indicate challenges like reduced demand or tax planning adjustments,
while the projected increase in FY25 signals potentiall recovery due to better adaptation to
GST systems.
Table 3- Positive Impacts of GST on MSMEs
Aspect Impact
Market Expansion GST removed inter-state barriers. MSMEs expanded into national markets
easily, with inter-state trade up by 22%(ASSOCHAM,2024).
Ease of Tax E-invoicing and simplified return filing(GSTR-1andGSTR-3B) benefited
Compliance MSMEs with a turnover below ₹5 crore.
Access to Formal MSMEs registered under GST were preferred by banks and NBFCs,
Credit leadingtoa17% rise in credit disbursement (SIDBIReport,2025).
Input Tax Credit Enabled MSMEs to claimrefundsontaxespaid forraw materials,thus
(ITC) reducing overall production cost by 3-4%.
Digitalization Push GST registration encouraged MSMEs to adopt digital accounting, e-
invoicing, and digital payments.
Table 4-Negative Impacts of GST on MSMEs
Aspect Impact
Despite simplifications, filing multiple returns and reconciliations
Compliance Complexity
remainedchallenging.63%ofMSMEsfoundcompliancedifficult (FICCI
Survey, 2024).
Higher Working Delays in input tax refunds caused cash flow issues, especially for
Capital Requirements small exporters.
Technology Adoption Micro enterprises in rural areas faced difficulties in adopting GST-
Gap compliant digital platforms.
Increased Operational Hiring accountants and software services for GST compliance
Costs increased operational costs by 5–8% for small units.
Small errors in return filing led to penalties, affecting smaller firms
Penalty and Interest
disproportionately.
4. Key Statistics(2024–25)
• MSME GST Registrations: 1.2 million new registrations (MoMSME,2025).
• Compliance Rate: 82% timely GST return filing among MSMEs (GSTNReport, 2025).
• Export Growth: MSME exports grew by 10%, helped by GST-linked refund mechanisms
(DGFT Data, 2025).
• TechnologyAdoption: 65% MSMEs started using e-invoicing and GST billing software (FICCI
Report, 2024).
5. Challenges Identified
• Lack of GST awareness among micro and rural enterprises.
• High cost of technology adaptation.
• Complicated refund processes for exporters.
• Need for sector-specific GST slabs (e.g. ,textile, handicrafts industries).
CONCLUSION
Implementing Goods and Services Tax (GST) has had a transformative
impact on the Micro, Small, and Medium Enterprises (MSMEs) in India. The new tax regime
has dismantled geographical barriers for MSMEs, enabling access to broader markets across
India and empowering them to compete effectively with more prominent players.
By eliminating the cascading effect of multiple taxes and facilitating seamless input tax credits,
GST has helped reduce production costs forthe MSME sector. Further, aspects like a national
common market, composition scheme, and export incentives have allowed MSMEsto enhance
their capacity utilization and broaden revenue opportunities.
Despite some early transitional glitches regarding procedural complexities, revenue uncertainty,
and infrastructure constraints, concerted efforts have been made to alleviate pain points for
MSMEs through tax rationalization and reforms focusing on easier digital compliances, timely
refunds, and single-window dispute resolution processes.
With MSMEs emerging as significant contributors to exports and employment in recent years
under GST, there is tremendous potential for further growth through sustained policy initiatives
to ease tax compliance burdens and access to formal credit for small businesses. By actively
enhancing MSME competitiveness, India can leverage GST to position them as globally
integrated innovators and key drivers of economic growth
MSMEs are the backbone of India’s economy, contributing around 30% of
GDP, 48% of exports, and providing employment to over 110 million people. These enterprises
are located across various sectors including manufacturing as wellas services, and contributes to
the promotion of entrepreneurship and regional development.
GST reform has replaced various indirect taxes such as service tax, VAT and excise duty into
single tax structure. The primary objective was to get rid of tax inefficiencies and set up astate
ofgoods and services taxes. This transition fundamentally changed MSMEs compliance
requirements, cost structures, and opportunities for growth.
Here is a refined and academically sound Suggestions section based on your content:
Suggestions
Small and Medium Enterprises (SMEs in India continue to face significant challenges in
complying with the Goods and Services Tax (GST) regime due to limited GST knowledge,
procedural complexities, high compliance costs, and difficulties related to digital compliance.
Even after seven years of GST implementation, these issues continue to hinder effective tax
compliance among SMEs. In view of these challenges, it is strongly suggested that GST laws
and procedures be further simplified to make compliance easier and less time-consuming for
small businesses.
In the post–Covid-19 period, a large number of SMEs are still struggling to restore profitability
and financial stability. Therefore, the government should take proactive measures to reduce the
financial burden associated with tax compliance by offering relief in the form of lower
compliance fees, extended deadlines, and simplified return filing for small taxpayers.
Additionally, there is a critical need to strengthen the digital infrastructure of Indian SMEs by
providing affordable access to technology, software support, and internet connectivity.
Furthermore, continuous public awareness and education programmes should be organized to
enhance GST-related knowledge and improve digital literacy among SME owners and
employees. Training workshops, government-led outreach programmes, and collaborations with
industry associations can play a vital role in improving understanding and confidence in GST
compliance. Such supportive measures will not only improve compliance levels but also
contribute to the long-term growth and sustainability of SMEs in India.
The findings of the present study clearly indicate that Small and Medium Enterprises (SMEs) in
India continue to face serious challenges in complying with the Goods and Services Tax (GST)
system due to limited knowledge, procedural complexity, high compliance costs, and
dependence on digital platforms. Even after seven years of GST implementation, compliance
difficulties persist, thereby affecting the financial stability and operational efficiency of SMEs. In
view of these challenges, several important suggestions are proposed to improve GST
compliance and strengthen the overall functioning of SMEs.
First and foremost, it is strongly recommended that GST laws and procedures be further
simplified to make them more understandable and user-friendly for small business owners.
Complex return filing processes, frequent rule changes, and multiple compliance requirements
create confusion among SMEs. The government should introduce simplified return formats,
reduce the number of returns for small taxpayers, and ensure stability in GST provisions. A
stable and predictable tax framework will enhance voluntary compliance and reduce dependency
on tax professionals.
Secondly, the cost of GST compliance needs to be significantly reduced, especially for micro
and small enterprises. Compliance expenses such as professional consultancy fees, accounting
software costs, penalties for delayed filings, and interest on late payments place a heavy financial
burden on SMEs. The government should review and rationalize these costs by offering
subsidized accounting software, reducing penalties for minor and unintentional errors, and
providing free or low-cost GST return filing assistance through government agencies and MSME
support centers.
In the post-Covid-19 economic environment, a large number of SMEs are still struggling to
regain profitability and financial stability. Therefore, it is suggested that the government
introduce special GST relief measures for struggling SMEs, such as temporary tax
concessions, waivers of late fees, extended due dates for return filing, and lower interest rates on
delayed payments. Such relief measures will help SMEs stabilize their business operations and
improve their liquidity position.
Another crucial suggestion is the strengthening of digital infrastructure for SMEs. Since GST
compliance is fully technology-driven, inadequate access to reliable internet, lack of digital
devices, and low technical capability pose serious hurdles, especially in rural and semi-urban
areas. The government should expand affordable broadband connectivity, provide subsidies for
digital equipment, and develop easy-to-use GST software in regional languages to ensure
inclusive digital participation of SMEs.
Further, there is an urgent need for continuous GST awareness and capacity-building
programmes. Many SME owners still lack proper understanding of GST provisions, input tax
credit mechanisms, filing procedures, and compliance timelines. Regular training programmes,
workshops, webinars, and helpdesk services should be organized by the GST department in
collaboration with industry associations, chambers of commerce, and educational institutions.
These programmes should focus on practical aspects of compliance rather than only theoretical
knowledge.
In addition to GST awareness, digital literacy among SME entrepreneurs and employees
must be enhanced. Digital illiteracy restricts the ability of SMEs to handle online registrations,
return filings, e-invoicing, and e-way bills independently. Government-sponsored digital literacy
initiatives should be strengthened, particularly targeting micro and rural enterprises, women
entrepreneurs, and first-generation business owners. Improved digital skills will reduce
dependence on intermediaries and lower compliance costs.
Moreover, better grievance redressal and support mechanisms should be established to assist
SMEs in resolving GST-related issues promptly. Technical glitches in the GST portal, input tax
credit mismatches, refund delays, and procedural errors often create serious operational
disruptions. A strong and responsive grievance redressal system with time-bound resolution will
enhance trust in the GST system and encourage smoother compliance.
Finally, it is suggested that policy formulation for GST should adopt a participative and
SME-centric approach. Feedback from SMEs, tax practitioners, and industry bodies should be
regularly incorporated while framing or revising GST policies. Periodic impact assessments of
GST on SMEs should be conducted to identify practical challenges and introduce corrective
measures. Such an inclusive approach will ensure that GST serves as a facilitator of growth
rather than a burden on small businesses.
In conclusion, the effective implementation of these suggestions—simplification of GST laws,
reduction in compliance costs, post-pandemic financial relief, strengthening of digital
infrastructure, enhancement of GST knowledge and digital literacy, improved grievance
redressal, and SME-focused policy reforms—will significantly improve GST compliance among
SMEs in India. These measures will also promote sustainable growth, improve revenue
transparency, and strengthen the overall contribution of SMEs to the Indian economy
Long-Term Implications of GST on MSMEs
Overtime, GST is expected to drive several transformative changes in the MSME sector:
• Encouraging Formalization: On the other hand, GST has lured businesses to formalise and file
tax returns to access such benefits, which in turn increases transparency, and enables access to
institutional funding.
• Improved Competitiveness: GST has made MSMEs more competitive in domestic and global
markets by reducing costs through ITC and promoting efficiency.
• Better Integration into Supply Chains: The streamlined tax system has included MSMEs in
the organized supply chains increasing their market reach.
• Global Market Access: GST norms compliance helps to boost credibility of MSMEs and hence
make them more attractive to the international buyers and partners.
The impact of GST on MSME in India was multi faceted and had both
opportunities and challenges. GST did, one the one hand, simplify taxation, fostered
transparency and exposed new ways of growth. For smaller enterprises, however, compliance
complexities and cash flow issues have posed hurdles on the other. Whether the GST tax will be
a success depending on continuous government support and MSME’s adaptation to GST
requirements. Through digital tools and participation in training programs, MSMEs, under GST
framework, can thrive by taking advantage of benefits like the Composition Scheme. Given
GST’s evolution, MSMEs and India’s economic growth remain at the fore front of GST’s role.
The long term success of this landmark reform will be the product of collaborative efforts
between the government, industry bodies and MSMEs.
Small and Medium Enterprises in India face many challenges in
complying with Goods and Service Tax. These challenges include lack of GST \knowledge,
procedural complications, compliance cost and digital compliance. Even after 7 years of
implementation, SMEs in India cannot improve their tax compliance due to these challenges.
It is suggested that the GST laws be simplified to help SMEs overcome these [Link]
Covid-19, majority of the businesses are struggling to make profits. Therefore, the government
should take measures to eliminate the high financial burden on SMEs caused by tax compliance.
Moreover, Indian SMEs should be supported to have sound digital infrastructure. Public
awareness and education programmes for enhancing GST knowledge and digital literacy should
be conducted.
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