Union Budget 2026: Government May Ease GST Rules for Small Businesses to Cut Compliance Burden
The Union Budget 2026 could bring significant relief for small businesses and micro, small and medium enterprises (MSMEs), as the government is reportedly considering simplifying Goods and Services Tax (GST) rules. The move is aimed at reducing the compliance burden on small enterprises, which have been facing growing pressure due to global trade challenges, including the impact of higher US tariffs.
India has nearly 7.3 crore MSMEs, which play a crucial role in the economy by contributing around 30 percent to the country’s Gross Domestic Product (GDP). These enterprises also account for nearly 45 percent of India’s total exports. Given their importance, experts believe that easing GST compliance norms could provide much-needed support to the sector at a critical time.
Quarterly GST Payment Option Under Consideration
According to sources, the government is evaluating multiple proposals to make GST compliance simpler for small businesses. One of the key suggestions under discussion is allowing eligible small enterprises to pay GST on a quarterly basis instead of the current monthly payment system. At present, businesses are required to file returns and make tax payments every month, which many small firms find difficult due to limited resources and manpower.
Under the revised MSME classification norms, businesses with an annual turnover of up to ₹10 crore fall under the micro enterprise category. If approved, the quarterly GST payment option could significantly reduce paperwork and improve cash flow management for such businesses.
Sources familiar with the matter have indicated that these proposals may be announced in the Union Budget 2026, as part of the government’s broader effort to support MSMEs and strengthen domestic economic growth.
Leniency in GST Enforcement for Minor Errors
Apart from simplifying payment timelines, the government is also considering a more lenient approach in enforcing GST rules for MSMEs. Under the proposed changes, small businesses may receive only a warning for delays in return filing or unintentional errors during the initial instances.
As per the proposal, no penalty would be imposed for the first two such lapses. This would mark a significant shift from the existing framework under Section 47 of the Central GST Act, which mandates penalties for delayed return filing.
Currently, delays in filing GST returns such as GSTR-1, GSTR-3B, and GSTR-9 attract a daily penalty that continues to increase until it reaches a prescribed maximum limit. Additionally, delayed tax payments attract interest at an annual rate of 18 percent. For many micro and small enterprises, these penalties and interest costs add to financial stress.
MSME Ministry Pushes for Relief Measures
Officials have indicated that the Ministry of MSME has forwarded these proposals to the Ministry of Finance for consideration. The discussions also involve the Ministries of Corporate Affairs and Finance, highlighting a coordinated effort to rationalise tax-related regulations for small businesses.
Earlier this year, the government reduced GST rates across several categories, with the revised rates coming into effect from September 22. These steps suggest that the administration is actively working towards making the GST framework more business-friendly.
Impact of US Tariffs on Indian MSMEs
The urgency behind these proposed reforms has increased due to external trade pressures. The United States has imposed a 50 percent tariff on certain Indian goods, which has affected exports and, in turn, MSMEs that are heavily dependent on international markets.
Experts note that small businesses often lack the financial cushion to absorb sudden cost increases or compliance-related expenses. Reducing GST-related hurdles could help them remain competitive and sustain operations during uncertain global conditions.
Compliance Costs Eat Into Turnover
Industry representatives have long highlighted the high cost of compliance under the current GST regime. Vinod Kumar, President of India SME Forum, pointed out that return filing and associated compliance activities consume significant time and resources.
He noted that many micro enterprises are forced to hire dedicated staff or external consultants to manage GST filings. As a result, compliance costs can rise to as much as 6–8 percent of their total turnover, which is substantial for businesses operating on thin margins.
Expectations from Budget 2026
With the Union Budget 2026 approaching, MSMEs are hopeful that the government will announce concrete measures to ease GST compliance. Quarterly tax payments, relaxed penalty norms for initial defaults, and simplified procedures could collectively improve the ease of doing business for millions of small enterprises.
If implemented, these changes may not only reduce operational stress for MSMEs but also encourage greater formalisation, better compliance in the long run, and stronger contribution to India’s economic growth.
