SUMMARY
Since July 2017, the implementation of the Goods and Services Tax (GST) has been transforming small business invoicing, return filing, and cash flow management multitasking. At the same time, small businesses have been able to reduce interstate trade barriers, obtain refunds more quickly, and formalize their businesses digitally. Automating the filing of tax returns and issuing invoices has also minimized some business complexities. Though small businesses have benefitted, they have been burdened by compliance, such as the filing of multiple dynamic notifications and the cash flow strain attributed to the refund cycles, particularly with inverted duty structures. More recently imposed shifts in tax administration such as the QRMP scheme for smaller businesses, border control e-invoicing policies, and the ongoing restructuring of tax rates attempt to ease some of these pressures while simultaneously introducing more complexity.
Every small business owner needs to keep track of these new developments. Rulings like VKC Footsteps, which affirms the non-refund of services as a consequence of the inverted duty structure, and Bharti Airtel’s inability to amend GSTR-3B for the GSTR-3B tax period have been part of the larger context to these changes. Other notable mentions include Filco Trade Centre and Mohit Minerals, which have also shed light on the terms of ocean-freight IGST applicable to imports on a CIF basis. Nevertheless, adding more tax will emphasize the need to formalize businesses and broaden the tax compliance for small businesses.
INTRODUCTION
India’s landscape prior to GST was a complex set of systems: Excise and service tax, state VAT, entry tax, octroi, purchase tax, and various cesses each with differing bases, rates, levels, and schedules of compliance. The mosaic was replaced with a single destination-based tax system which included Central GST (CGST), State GST (SGST), and Integrated GST (IGST). For small businesses like kirana stores, job-workers, boutique manufacturers, e-commerce sellers, service freelancers, etc. the promise was ease of compliance due to the one-nation-one-tax system and better ITC flow. After eight (8) years, what do the records indicate? From a macro point of view, GST has led to a buoyant revenue and deeper formalisation. From a micro point of view, proprietors do deal with complexity in compliant knobs like registration thresholds, composition scheme conditions, QRMP, e-way bills, e-invoicing thresholds and reporting windows. Certainty of the fundamental structure of these conditions does change over time as the regime develops. The courts have also answered critical legal issues which shape the practical functioning of credits/refunds and return corrections.
FACTUAL BACKGROUND: THE CURRENT GST FRAME FOR SMALL BUSINESSES
In broad terms, and per the GST Act, registration becomes mandatory when the aggregate turnover crosses the limits prescribed. For the year 2025, in the case of the goods and in the steady level category of states, the threshold is often quoted as ₹40 lakh, for services is ₹20 lakh (with some special category states having lower limits). These thresholds have been, and continue to be, the subject of periodic changes and state-wise notifications, and as such, business owners should check the position pertaining to the respective state and the respective sector before assuming the rule of thumb to be applicable to them.
Even when you’re well below the threshold, voluntary registration may be beneficial when your customers are GST-registered businesses and request the tax invoices to claim the Input Tax Credit (ITC).
Small suppliers are eligible to the composition scheme which is the reduction in the simplified levy applied to turnover, with the added benefits of quarterly reporting and annual returns. These suppliers, however, do not receive Input Tax Credit (ITC) on inputs and do not have the ability to collect tax from their customers (you provide a Bill of Supply not a tax invoice). This scheme has a general turnover cap of ₹1.5 Crores (this is lower in certain states). If the cap is breached mid-year, the supplier loses eligibility from the moment the cap is breached and is required to inform via CMP-04.
QRMP lets eligible taxpayers (aggregate turnover up to ₹5 crore) file GSTR-3B and GSTR-1 quarterly, while paying tax monthly using PMT-06 and optionally using the IFF to push select invoices for buyer ITC each of the first two months. For many small businesses this significantly reduces return-filing touchpoints.
E-invoicing, once only for the largest taxpayers, has gradually extended downward. A key change relevant to mid-sized small businesses: from 1 April 2025, entities with AATO ≥ ₹10 crore that are already subject to e-invoicing must report invoices to the IRP within 30 days of issue (the 30-day rule earlier applied only above ₹100 crore). Many small-to-mid distributors and manufacturers now fall under this stricter timeline. Note: e-invoicing applicability itself currently remains for taxpayers above ₹5 crore turnover (as notified earlier).
For compliant chains, ITC is a boon reducing embedded tax. But delays or vendor non-compliance (e.g., supplier doesn’t upload invoices on time) defer ITC, effectively locking up working capital. This is exacerbated if a buyer insists on e-invoices while a seller is learning the ropes.
Where output is at a lower rate than inputs (common in footwear, textiles, specific FMCG components), ITC accumulates.
Errors discovered later must be corrected in subsequent periods, not the original month. For a small firm that mistakenly paid excess tax in a high-revenue month, the inability to re-open that period can extend cash-flow strain.
GST curbed cascading taxes, which should help prices. But compliance costs (software, consultants, staff time) and blocked credits (e.g., on IDS services) can erode margins. Digitisation (returns, e-invoices) yields clean data trails useful for bank credit (fintech cash-flow lending against GST ledgers) and for vendor scorecards in enterprise supply chains. These benefits are tangible once small firms cross the initial adoption hump.
RELEVANT SECTIONS UNDER THE CGST ACT, 2017
1. Composition Scheme (Section 10): A specific plan for small taxpayers with annual revenue up to ₹1.5 crore (₹75 lakhs for states in special categories).
· Permits companies to pay tax at a predetermined proportion of turnover rather than the standard GST rate.
2. Section 22: Supplier Registration
o If a company’s total revenue surpasses ₹40 lakhs (₹10 lakhs in certain special category states, and ₹20 lakhs for services), it is required to register under GST.
o Registration is not required below this threshold, which is advantageous for small firms.
3. Section 23: Persons Not Liable for Registration o identifies those who are exempt from the GST registration requirements, such as farmers and enterprises operating below the threshold.
Section 24: Compulsory Registration Certain groups, such as interstate suppliers and e-commerce operators, are required to register even if their turnover is below the threshold.
4. Section 49: Tax, Interest, and Penalty Payment o Describes the system of electronic currency and credit ledgers. o Vital for small enterprises using digital tax compliance management.
5. Section 50: Interest on Delayed Payment Interest liability for late tax payments is a regular problem for small businesses who are struggling financially.
6. Section 54: Refund of Tax o Provisions for reimbursement of excess GST paid.
Important for small businesses and exporters that are experiencing a working capital constraint.
Standard GST duty on intrastate supply of goods and services (Section 9: duty and Collection).
o Establishes the framework for tax liabilities.
CASE LAWS:
1) VKC Footsteps India Pvt. Ltd. v. Union of India (2021)
Rule 89(5) of the CGST Rules, which limits the return of accrued ITC in an inverted duty structure to inputs (goods) and not input services, was upheld by the Supreme Court. The Court left policy rectification to the GST Council, but it acknowledged concerns with the refund formula’s bias toward revenue.
Working capital is strained when small firms with service-intensive inputs (job-work, warehousing, logistics) are unable to profit from that share of ITC through IDS refunds.
Action item: Price in the non-refundable service ITC; when informed, take into account adjustments to rate rationalization or supply-chain reconfiguration.
2) Union of India v. Bharti Airtel Ltd. (2021):
The ruling states that GSTR-3B errors must be fixed in later returns rather than by reopening the initial time frame. Why it’s important Cash remains frozen until adjustments are made in subsequent months if you overpaid during a period of high turnover. Action item: Put maker-checker controls in place and tighten monthly reconciliations.
3) Filco Trade Center Pvt. Ltd. v. Union of India & Ors. (2022)
A single opportunity to apply for transitional credit In order to enable taxpayers to claim transitional credits, the Supreme Court ordered GSTN to reopen the TRAN-1/TRAN-2 site for two months (September–October 2022); verification rules were adhered to.
Why it’s important For many MSMEs, transitional credit disputes were a burden; this decision provided a methodical mechanism to settle legitimate claims. Action item: If you participated in this window, make sure your documentation is flawless and keep records for examination after verification.
CONCLUSION
The GST’s main wager was that a single, digital, destination-based tax would promote growth, expand the base, and reduce friction. The overall impact on small enterprises is uneven but getting better: digitization opens up finance access and trust with larger purchasers; interstate trade and ITC chains function better when partners comply; and QRMP significantly reduces filing cadence. However, the cost of complexity is still present, particularly for industries with inverted duty systems or businesses that are straddling thresholds. Supreme Court decisions that require improved internal controls and cash-flow planning have sharpened the edges of compliance (no back-period rectifications; limited IDS refunds). The next wave of relief is anticipated to come via rate rationalization, clear guidance notes, and predictable tech rollouts that keep MSME realities up and center, according to the policy trajectory—strong revenues, Council focus on simplification. Right now, proactive vendor management, disciplined, data-driven compliance, and keeping a close eye on council updates are the best practices for small businesses.
REFERENCE
https://cleartax.in/s/impact-of-gst-on-business – :~:text=They%20are%20no%20longer%20liable,input%20tax%20credits%20under%20GST.
https://kmgcollp.com/gst-registration-for-small-businesses-new-guidelines-how-gst-affects-small-businesses/ – :~:text=Is%20GST%20required%20for%20small,20%20lakhs%20for%20services.
https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=155151&ModuleId=3
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Author: Praveen V. N., Student of Lovely Professional University, 3rd Year LLB
