Excessive GST Notices & Request for Enhancement of GST Turnover Limits

Karnataka Taxpayers Association has submitted a representation to the Finance Minister and GST Council, highlighting the challenges faced by small taxpayers due to numerous GST notices. These notices are frequently triggered by online transaction data from platforms like PhonePe and Google Pay, impacting micro and small enterprises. The representation notes a significant cumulative increase in the Consumer Price Index (CPI) by approximately 38% since GST implementation in July 2017, with specific inflation surges in food and beverages (40-50%), construction materials (50-70%), transportation costs (45-60%), packaging materials (up to 55%), and general operating costs (30-40%). Despite these economic shifts and the resulting thin profit margins (6-8%) for small businesses, the GST registration thresholds have remained unchanged at ₹40 lakhs for traders and ₹20 lakhs for professionals since their inception over five years ago. This creates a disproportionate compliance burden and inconsistency with Income Tax Act provisions, which allow for higher turnover limits (e.g., ₹2 crore under Section 44AD/44ADA).

The Association requests a revision of the annual GST registration turnover limit to ₹1 crore for both traders and professionals, aligning it with current economic inflation and Income Tax provisions. They also propose a one-time GST Amnesty Scheme for small taxpayers who received notices based on digital receipts but are unregistered, allowing them to pay 1% of disclosed turnover without interest or penalties and regularize their registration. Furthermore, they emphasize that small taxpayers should not be penalized solely based on digital transaction data, which may include non-business receipts. The submission urges the Ministry and GST Council to prioritize these matters to reduce compliance burdens and support ease of doing business for small entrepreneurs.

KARNATАKА ТАXPAYERS ASSOCIATION®
(State Association Of Taxpayers Of Karnataka, Enroll With NGO Darpan Niti Aayog, Govt Of India)
Address for Communication – State President Office
2nd Floor, S.A. Sattar Khan Manzil, Tempo Stand down, 2nd Cross, Marnami Bail, Shimoga-577201, Karnataka
Email: kartaxpayerassociation@gmail.com

To          
The Hon’ble Finance Minister,
Government of India

CC:
The Hon’ble Chairperson, GST Council
Office of the GST Council Secretariat
5th Floor, Tower II, Jeevan Bharti Building
Connaught Place, New Delhi – 110001

Subject: Representation Regarding Excessive GST Notices to Small Taxpayers and Request for Enhancement of Turnover Limits.

Respected Madam/Sir,

The Karnataka Taxpayers Association (R), a registered non-governmental organization committed to representing and protecting the interests of taxpayers across the State of Karnataka, respectfully submits this representation regarding the growing distress among small taxpayers due to numerous GST notices, particularly triggered by online transaction data sourced from platforms such as PhonePe, Paytm, Google Pay, and similar digital gateways.

Since the implementation of the Goods and Services Tax (GST) in July 2017, India has undergone significant economic transformation marked by a consistent rise in inflation across all major sectors. The Consumer Price Index (CPI), as reported by the Ministry of Statistics and Programme Implementation (MoSPI), has cumulatively increased by approximately 38% between FY 2017–18 and FY 2024–25. This increase reflects a notable rise in the prices of essential goods and services, placing a growing burden on small traders and professionals.

• Food & Beverage Inflation: Prices have surged by 40%–50% during this period, especially in staples like rice, pulses, vegetables, and edible oils. (Source: RBI Inflation Bulletin, MoSPI CPI data)
• Construction and Building Materials: Key materials such as steel, cement, and electrical goods have seen inflationary growth between 50%–70%, driven by input costs and supply chain dynamics.
• Transportation Costs: With fuel prices escalating and input costs rising, logistics and transport rates have gone up by 45%–60%, directly impacting supply-chain-dependent micro businesses. (Source: Ministry of Petroleum & Natural Gas, PPAC data)
• Packaging Materials: Due to global supply chain issues and import duties, packaging input costs like plastic, paperboard, and corrugated boxes have seen increases up to 55% since 2017.
• General Operating Costs: Rent, electricity tariffs, labour wages, and digital infrastructure expenses have also escalated by 30–40%, further squeezing profit margins of small traders.

Despite these economic developments, the GST registration threshold continues to remain unchanged at Rs. 40 lakhs for traders and Rs. 20 lakhs for professionals, limits that were set over five years ago. These static thresholds do not reflect the inflation-adjusted realities of today’s market and continue to force micro and small enterprises—operating with thin margins (6–8%)—into disproportionate compliance burdens and scrutiny under the GST regime.

Furthermore, there exists a glaring inconsistency between the turnover criteria prescribed under the GST Act and those under the Income Tax Act. This misalignment creates unnecessary confusion and compliance risks for small taxpayers, particularly those who are digitally active but operate at subsistence-level margins.

We humbly request to Submit that:

1. We humbly request the Hon’ble Finance Minister and GST Council to consider revising the annual GST registration turnover limit from 40 lakhs to Rs. 1 crore for traders and from Rs. 20 lakhs to Rs. 1 crore for professionals, in parity with economic inflation and to bring it in sync with Income Tax provisions (e.g., Section 44AD/44ADA presumptive taxation schemes), which provide Annual Turnover to Rs 2 Crore.

2. We propose the introduction of a one-time GST Amnesty Scheme for small taxpayers who have received notices based on digital receipts but have not registered under GST. These taxpayers may be permitted to pay 1% of the disclosed turnover as tax without interest or penalties, and be allowed to regularize their GST registration prospectively with new annual turnover to Rs 1 Core (if they crossed.)

3. With the Government actively promoting cashless transactions and digital payment systems, small taxpayers should not be penalized solely based on digital transaction data, particularly when such data may include personal transfers, reimbursements, or non-business receipts.

It is imperative that the GST framework evolves in step with the macroeconomic environment to reduce compliance burden and support the ease of doing business for India’s micro and small entrepreneurs. We urge the Hon’ble Ministry and GST Council to place this matter on high priority for deliberation and favorable resolution in the next GST Council meeting.

We remain hopeful that this submission will receive your kind consideration and empathetic action.

Thanking You.

Yours faithfully,
Zafarulla Sattar Khan
Chartered Tax Practitioner
Founder State President