Next-gen GST reforms: Single registration, easier input tax credit among key MSME demands

The 57^th GST Council meeting, now slated for October 8, 2026 (Thursday), is likely to consider several proposals aimed at easing compliance burden for small businesses in the country. One proposal that could offer big relief to micro, small, and medium enterprises (MSMEs) is allowing small e-commerce sellers to operate across the country with a single registered address. If approved, the move would ease the burden of multiple state registrations, documentation, and filings that sellers currently deal with.

The proposals follow the major GST (goods and services tax) rate rationalisation implemented in September 2025.

Under the current GST rules, sellers need to have a registered address in every state they sell their products in. The new proposal, if approved, will recognise warehouses managed by e-commerce platforms as additional places of business. The proposal aims to ease compliance requirements that currently make interstate e-commerce more difficult for smaller businesses.


Level playing field

Himanshu Gandhi, CEO and Co-Founder of baby care brand Mother Sparsh, says that for start-ups and growing businesses with lean teams, the current provisions add considerable operational effort and cost. “A simpler, centralised, and digitally integrated compliance framework would make interstate expansion more efficient, while reducing the effort involved in accounting, reconciliation, and tax reporting,” he says.

Gandhi says that simplifying GST compliance can help create a more level playing field for start-ups, e-commerce businesses, and first-time entrepreneurs. “Larger companies typically have dedicated resources to manage complex compliance, while young businesses operate with leaner teams. Reducing this complexity can help emerging brands access markets across India with lower compliance costs, scale faster and compete based on their products, innovation and customer experience,” he explains.

Speaking in similar sentiments, Praveen Khandelwal, MP and Secretary General, CAIT, says the proposal, if approved, can become one of the most significant ease-of-doing-business reforms for India’s small traders, artisans, MSMEs, women entrepreneurs, start-ups, and home-based businesses. “It will provide national market access to traders where even a small trader sitting in Meerut, Moradabad, Ludhiana, Jaipur, Surat, Coimbatore, or Guwahati will be able to sell products across India without establishing offices or obtaining registrations in multiple states. On the other side, it will lower compliance cost,” he says.

According to him, lakhs of small manufacturers, handicraft producers, rural entrepreneurs, self-help groups (SHGs), and women-led enterprises will find it easier to join digital commerce. “Reports indicate that nearly 90% of platform sellers could benefit from this simplification,” he adds.

As SMEs increasingly rely on e-commerce platforms to reach wider markets, the proposed changes can significantly impact their business. For the sellers, the ability to operate across states is closely linked to warehousing, fulfillment, shipping costs, delivery timelines, and inventory management. If platform warehouses can be used more easily as places of business, sellers could potentially place inventory closer to customers and improve fulfilment efficiency.

Affirming Gandhi’s views, Yatish Talvadia, Founder & Chief Experience Officer of fresh staples start-up Anmasa, says that under the present framework, GST tax liabilities are associated with the state where the business maintains taxable operations or a place of business. “Hence, any expansions into other states result in more registrations and the liabilities that come with them. Registering is just the first step; the real challenge lies in maintaining compliance through recordkeeping and return filing in all locations. This becomes increasingly difficult for a D2C company as it expands geographically,” he points out.

Talvadia says that the proposal, if approved, will make it easier to contemplate expansion for sellers like them. “With easier processes for GST, companies will be able to test out new markets in a risk-free manner and expand based on customer demand,” he adds.

Practical reform

Tanmay Kumar, CFO, Shiprocket, an e-commerce shipping platform, dubs it a practical reform for sellers. “The biggest hurdle is multiplicity: separate registrations, returns, and tax authority interactions in every state where a seller wants inventory or presence. Add to that the reconciliation of input tax credit and TCS between sellers and platforms, which often leads to disputes and blocked working capital. When a small seller misses a filing, their buyers can lose input tax credit too, which makes larger buyers wary of dealing with them,” he says.

Kumar gives the example of a seller in Indore who wants to stock goods in a Delhi or Bengaluru warehouse to deliver faster but would end up needing a separate GST registration in each state, with local premises, verification and its own set of returns. “Allowing that seller to verify once at home and then register in other states through the warehouse they already use removes the main reason small brands stay confined to one location,” he says.

He explains that a seller in a Tier II or Tier III town competes on delivery speed with brands that have warehouses in every metro. Placing stock close to the customer without opening an office in that state closes the gap: shorter transit times, fewer returns, and more repeat orders. “By removing local establishment requirements, the proposal can level the playing field between small and large sellers. Our one request is that the facility be channel-neutral. Many small brands sell through their own websites and social channels and use independent fulfilment networks. Where the same verification and data-sharing safeguards are met, the benefit should follow the seller, not the storefront,” he says.

MSMEs stand to gain

Industry stakeholders say that as the GST regime progresses from GST 2.0 to 3.0, the main differentiator will be implementation. “If implemented well, an MSME entrepreneur stands to gain the most. They will spend less time on compliance and more time on growth. Clean data, connected systems, and a regulator that trusts first are what modern regulation should look like,” Rishi Agrawal, Co-Founder & CEO, TeamLease Regtech, says.

Agrawal says that GST 3.0 points to a better approach where data is captured once, reused across sources and used to pre-fill returns.

He says that the proposals matter as much on the enforcement side to make things easier for entrepreneurs. “A higher threshold for prosecution would remove the sword that has hung over the honest entrepreneur’s head for too long. It would begin to dismantle the entrenched hostility between the state and the small business owner and make trust the default,” he says.

ITC reform a must

Other experts point to the issue of input tax credit that needs to be addressed for smaller businesses to truly feel the difference. Ajay Srivastava, Founder, GTRI, says the government should make reform of the input tax credit (ITC) system its top GST priority. “ITC is GST’s most important feature: it prevents repeated taxation of the same value and allows tax paid on purchases to be deducted from tax due on sales. Yet the system is not working properly. An honest business can receive goods, hold a valid invoice, and pay the full price, including GST, but still lose credit because its supplier fails to deposit the tax. This shifts the burden of enforcing tax collection onto the buyer, blocks working capital, and raises business costs, especially for small firms,” he says.

In the context of e-commerce, Srivastava says that most small e-commerce sellers find it hard to use GST due to the complex system for taking input credit. “The government must protect genuine buyers. A buyer who receives a real supply, pays through a traceable banking channel, and completes the required checks should have secure ITC, unless fraud or collusion is established. GSTN should also give buyers reliable information on whether tax linked to their invoices has been paid, with clear safeguards against double recovery,” he says, adding that changing rates alone cannot deliver GST’s promise. “Fixing ITC is essential to reducing business costs, protecting small enterprises and making GST a seamless tax system,” he emphasises.

Echoing similar sentiments, Rahul Ahluwalia, Founder and Director of Foundation for Economic Development, says that easy refunds and input tax credit offsets, especially for exports, will be the most critical reforms for small businesses which struggle to find working capital.

In the meantime, Khandelwal has concerns about protecting small sellers from unhealthy practices of large e-commerce companies. “While simplification is welcome, it must be accompanied by safeguards to ensure a level playing field by taking steps to prevent predatory pricing, deep discounting, loss of funding and owing inventory by big e-commerce. Equal search visibility, protection from arbitrary suspension, timely payments, control of private labels, and transparent fee structure. A strong grievance redressal system and strict enforcement of e-commerce rules are much needed for small sellers to operate online,” he says.