GST Compliance Simplified: Key Updates and Strategies for the Upcoming Financial Year

This article has been contributed by Cheruku Srikanth, Founder & CEO, Digital CFO.

The Goods and Services Tax (GST), introduced on July 1, 2017, replaced multiple indirect taxes such as VAT, service tax, and excise duty. As a multi-stage, destination-based tax, GST has four slabs - 5%, 12%, 18%, and 28% - depending on the nature of goods and services.

Over the years, GST collections have grown steadily, bringing fiscal stability, increased transparency, and a stronger tax base. With Budget 2025-26 introducing key amendments, GST compliance and revenue collection are expected to improve further. This article looks at the impact of rising GST collections, what drives compliance, and how simplification can encourage more businesses to participate.

How Higher GST Collections Benefit the Economy

A rise in GST collections directly impacts India's fiscal and economic health. The benefits include:

Higher Tax Revenue:

More GST revenue allows the government to fund infrastructure, public services, and welfare programs while managing fiscal deficits.

Economic Stability:

A rise in collections signals higher consumption and production, reflecting a healthy business environment.

Lower Fiscal Deficit:

Steady revenues reduce the need for external borrowing, improving the country’s financial position.

Better Infrastructure Spending:

Increased revenues enable more investments in roads, railways, healthcare, and education, creating jobs and economic growth.

More Businesses in the Formal Economy:

GST has brought more enterprises under the tax net, improving compliance and financial planning.

Easier Business Operations:

Higher compliance reduces tax evasion and streamlines administration, making India more attractive for investment.

Inflation Concerns:

While GST revenue growth is positive, higher tax rates or compliance costs can push up prices, particularly affecting small businesses and essential goods.

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What Drives GST Compliance and Higher Collection

Several factors have contributed to better compliance and increased tax revenues:

Technology Adoption:

E-invoicing, automated tax filing, and AI-driven reconciliation tools have helped reduce evasion.

Stronger Enforcement:

Heavy penalties, late payment interest, and cancellation of GST registration ensure businesses comply.

E-Way Bills and Invoice Matching:

Tracking goods movement and matching invoices between buyers and sellers ensures that only genuine tax credits are claimed.

Simplified Filing Process:

The QRMP scheme (Quarterly Return Monthly Payment) has eased compliance for small businesses, while ERP software integration has streamlined tax returns.

Increased Awareness:

MSME outreach programs, tax workshops, and digital education have improved compliance levels.

Economic Growth and Digital Transactions:

The rise of e-commerce and digital payments has expanded the tax base, making evasion harder.

Tax Rate Adjustments:

Lower GST on essential goods encourages voluntary compliance.

Government Incentives:

Faster GST refunds, easier credit claims, and compliance-linked loan benefits motivate businesses to follow regulations.

The Need for Simplified GST Compliance

Despite improvements, GST compliance remains complicated for many businesses. Key challenges include:

• Multiple tax slabs (5%, 12%, 18%, 28%) leading to confusion.
• Frequent policy updates create regulatory uncertainty.
• Input Tax Credit (ITC) mismatches cause compliance delays.
• Multiple return filings (GSTR-1, GSTR-3B, GSTR-9) add to the workload.

Simplifying GST processes will encourage more businesses to register and file returns correctly. Benefits include:

• More voluntary compliance due to reduced complexity.
• Fewer errors and tax penalties.
• Easier ITC claims, improving cash flow.
• Integration with ERP and automated tax filing systems to make compliance hassle-free.

Budget 2025-26: Key GST Reforms

The latest budget has introduced several changes to improve compliance and trade facilitation:

ITC for Input Service Distributors (ISD):

From April 1, 2025, ISD can distribute ITC on inter-state reverse charge transactions, helping businesses with centralised procurement.

Clarity on SEZ and FTWZ Transactions:

Goods stored in Special Economic Zones (SEZs) and Free Trade Warehousing Zones (FTWZs) will not be classified as supply, reducing tax disputes.

GST Slab Restructuring:

The government is working on simplifying tax slabs to reduce compliance costs for businesses, especially SMEs.

Track and Trace Mechanism:

A new Unique Identification Marking system will improve supply chain transparency, benefiting high-value industries.

ITC for Immovable Property:

A retrospective amendment allows businesses to claim ITC on property-related investments, including plant and machinery.

Mandatory Pre-Deposit for Penalty Appeals:

Businesses appealing GST penalties must pay a 10% pre-deposit, ensuring a more structured dispute resolution process.

Return Filing Conditions:

New regulations will set conditions for GST return filing, improving transparency and compliance.

Conclusion

GST has played a key role in improving tax compliance and formalising India’s economy. While progress has been made, issues like complex return filing and ITC mismatches still need attention. The reforms announced in Budget 2025-26 aim to simplify compliance, reduce business burdens, and create a more efficient tax system.

With increasing digitisation and AI-driven tax compliance tools, automation will play a critical role in improving collections and making GST compliance easier. As policies evolve, India is set to create a more business-friendly GST framework that balances revenue growth with economic ease.

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