MSMEs and GST@9: Journey so far and next phase of reforms

Micro, Small and Medium Enterprises (MSMEs) are essential to India’s economic growth, employment generation and to offer larger industries, the access to cost-effective solutions. Once viewed as among the most burdened by GST compliance, MSMEs are now showing clear signs of adaptation and increasing acceptance of the unified tax regime as India’s Goods and Services Tax completes nine years.

Deloitte India’s GST@9 survey of 1,096 senior business leaders across eight industries, including MSMEs, has reposed faith in GST. Policymakers and industry leaders are now pushing for the next phase of reform supported by the strong vote of confidence in the GST regime.

More than 99 per cent of businesses now report a positive or neutral experience with GST, indicating near-universal acceptance among MSMEs. Survey findings suggest that structural and operational reforms have gradually reduced friction for smaller enterprises, with the Quarterly Return Monthly Payment (QRMP) scheme emerging as a key enabler. Acceptance of quarterly return filing among MSMEs rose from 12 per cent in 2023 to 67 per cent in 2026, a five-fold increase that reflects stronger awareness and meaningful relief from monthly compliance requirements that once burdened small businesses.

Threshold relaxations have also been well received, with 57 per cent of MSME respondents recognising their positive impact and relevance across industries.

Apart from return filing, supply chain efficiency has become a valued benefit. The removal of cascading taxes and the creation of a unified national market have made procurement and logistics more predictable and cost-effective.

The Road to GST 2.0 for MSMEs
For India Inc., including MSMEs, the focus appears to have shifted from stabilisation to optimisation, as confidence grows on account of digital adoption, proactive policy changes and responsive tax administration.

MSME priorities include cross-utilisation of CGST credits, widening the scope of inverted duty structure refunds to cover capital goods and input services, and allowing year-end refunds of accumulated ITC balances to ease liquidity constraints.

Key reforms that merit focus in the next phase of GST 2.0 include:

1. An overwhelming 88 per cent of MSME respondents support invoice-based ITC eligibility with relaxed matching requirements, nearly double the 41 per cent recorded in 2025.

MSMEs are particularly affected by compliance complexity, including ITC denial arising from retrospective cancellation of supplier registrations. When a vendor’s GST registration is cancelled retrospectively, the MSME buyer may lose ITC already availed, despite having limited ability to monitor supplier compliance.

Streamlining this mechanism is viewed as one of the most practical ways to improve MSME cash flows.

2. Around 89 per cent of MSME respondents support automatic interest on delayed GST refunds, given the cash flow pressures such delays create. Exporters and manufacturers have historically been among the most affected.

Timely refund disbursal emerged as the top priority, cited by 53 per cent of respondents, indicating continued gaps in adherence to prescribed timelines. Another 43 per cent identified reduced manual intervention and fewer discretionary queries from the tax department as key reform priorities.

3. A perceived pro-Revenue approach during audits remains a key concern for businesses. Survey results indicate that input tax credit eligibility disputes are among the main drivers of GST litigation. A harmonised dispute resolution mechanism, supported by a consistent, predictable and fair framework, could reduce interpretational issues and litigation costs, particularly for small businesses.

4. GST technology stabilisation has also emerged as an important expectation from GSTN 2.0. Around 65 per cent of MSME respondents believe compliance digitalisation, including real-time reporting and data analytics, is both a priority and a key driver of value creation under GST.

In addition, 61 per cent of MSMEs prefer a unified dashboard to monitor compliance ratings, ITC mismatches, and notices. Expectations from the GSTN portal are therefore evolving from standalone functionalities to a more integrated system.

As GST enters its next phase, India Inc., including MSMEs, is seeking reforms that deliver faster refunds, clearer input tax credit rules, simplified registration, and greater certainty through a more business-friendly tax framework that helps Indian small businesses remain competitive.

The author is Partner, Deloitte India.