India’s 73 million MSMEs contribute 30% to the GDP and 45% to the overall exports. The proposed reforms, which follow a cut in GST rates in September this year, come at a time when small businesses have been hit by the steep US tariffs of 50%.
The government is considering easing the goods and services tax (GST) compliance burden for small businesses in the Union Budget for the next fiscal, according to two people familiar with the matter, when US tariffs have disproportionately affected such enterprises.
The Centre may allow quarterly GST payments by micro-enterprises, compared to the current practice of monthly tax payments, the people quoted earlier said, speaking on the condition of anonymity. Micro enterprises are businesses with an annual turnover of up to ₹10 crore.
In case of 'genuine errors' or delayed filings, the micro, small and medium enterprises (MSMEs) may first be issued a warning, and penalties could be waived for the first two such instances, said the first person mentioned above.
Currently, under Section 47 of the CGST Act, a delay in filing GSTR-1, GSTR-3B, or GSTR-9 attracts a late fee, which increases daily until it reaches a maximum cap. An enterprise is also liable to pay interest at 18% per annum on the outstanding GST amount if the payment is delayed.
India's 73 million MSMEs contribute 30% to the GDP and 45% to the overall exports. The proposed reforms, which follow a cut in GST rates in September this year, come at a time when small businesses have been hit by the steep US tariffs of 50%.
Queries emailed to the Union ministries of finance and MSME on Friday remained unanswered until press time.
"Filing of taxes and other taxation-related compliances involves a lot of time and many a time requires a separate set of people to fulfil these requirements," said Vinod Kumar, president at industry lobby India SME Forum. "For a micro enterprise which is not deep-pocketed and does not have a lot of manpower, this is a lot of hassle and many times the compliance cost comprises about 6-8% of a micro enterprise's turnover."
The GST regime also offers a composition scheme–a simplified, optional tax compliance system wherein there is no tax liability and return filing mandate. However, according to experts, given that input tax credit is not available, it has few takers.
The ministries of MSME, finance and corporate affairs have been discussing easier taxation and regulatory compliance.
Given that GST rate cuts have impacted revenue buoyancy, the proposed relaxations will depend on a cost-benefit analysis of how many businesses may benefit from it with the least hit on revenue receipts, according to the people quoted earlier.
GST Council has to approve GST-related proposals going into the Union government's Finance Bill.
Ved Jain, tax expert and founder of Ved Jain & Associates, however, said that the government's revenue quantum would not be impacted if the proposed change is implemented.
The second person quoted earlier, however, said, "The reform measures decided in September with rationalized (GST) rates need to be complemented with further steps to ease compliance for small businesses."
The Centre and states together collected GST revenue of ₹1.7 trillion in November, only slightly more than ₹1.69 trillion they collected a year earlier. Gross revenues in the first eight months (April-November 2025) of the current financial year showed around 9% growth over a year earlier to ₹14.75 trillion.
The central government's direct tax revenue collection, after adjusting for refunds, stood at ₹17 trillion in the April to mid-December period, rising 8% year-on-year, according to official data. The growth, however, was slower than the projected 13% increase, as tax relief granted to individuals moderated revenue growth from personal income taxes.
Changes in definition
The budget may also mention a single-window MSME mobile application integrating GST, income tax, and UDYAM filings, said the first person quoted above. UDYAM is the portal developed by the Centre for registration of MSMEs in the country.
The plan is to provide micro enterprises with embedded free accounting software in the app to simplify recordkeeping and digital payments, which would enhance the 'Digital India' campaign, the person added.
As part of budget discussions, the MSME ministry has also proposed easing the audit requirement for micro enterprises to self-certification, similar to businesses with an annual turnover of over ₹5 crore. The ministry has also recommended introducing a mechanism to expedite the GST number application process for businesses, enabling the reactivation of suspended registrations within 48 hours of compliance.
The industry has been raising concerns about alleged delays in reviving the GST number for temporarily inactive taxpayers.
Experts suggest that with the changes in the definition of micro, small and medium enterprises, such relaxations are required. Under the new definition of MSMEs, the threshold for categorization as a micro enterprise has been increased from an annual turnover of ₹5 crore to ₹10 crore.
"The threshold for categorization as micro enterprises has increased. So, corresponding to the new thresholds, relaxations may be required," said Jain of Ved Jain & Associates. "Given these are smaller enterprises, they may want relaxations on the taxation front."