GST 2.0: How it impacts startups and SMEs

The rollout of GST 2.0 is set to reshape the business landscape for startups and small and medium enterprises (SMEs) across India. Scheduled for implementation on September 22, the new system aims to simplify tax compliance, rationalise rates, and address long-standing challenges faced by small businesses.

By simplifying GST slabs to 5%, 18%, and 40% and building on a record ₹22.08 lakh crore in 2024-25, India is ready for significant business growth. For startups,GST 2.0 reduces compliance costs and removes bottlenecks, making it easier to start and grow new ventures. The number of GST taxpayers has grown from 66.5 lakh in 2017 to 1.51 crore.

This creates a fertile environment for entrepreneurs in manufacturing, services, and exports, with reforms expected to add 0.5 to 0.8 percentage points to GDP each year.

Service providers, including IT, consulting, and professional services, benefit from faster refunds and simplified compliance. SMEs also gain significantly through lower tax rates under the composition scheme, quarterly return filing options, faster export refunds, and reduced documentation requirements. These changes help free up working capital and reduce the burden of taxation.

Small businesses face fewer compliance hurdles under GST 2.0.

Monthly filings for eligible taxpayers are now reduced to quarterly, and businesses with turnover up to ₹5 crore enjoy lower tax rates. The introduction of AI-driven invoice reconciliation simplifies filings and reduces errors, while faster input of credit refunds helps improve cash flow.

For example, an MSME with a turnover of ₹3 crore will save both time and money by filing quarterly instead of monthly.

The reforms also include exemptions for businesses with turnover below ₹40 lakh, simplified invoicing through digital systems, and sector-wise slab reductions, especially benefiting manufacturing MSMEs. These changes are designed to encourage growth, improve liquidity, and reduce bureaucratic hurdles.

Key reforms under GST 2.0 include a simplified tax structure, faster refunds, digital compliance tools, the removal of the GST compensation cess, and stronger support for exporters. While businesses may face challenges like initial costs of digital adoption and adjusting pricing models, the overall impact is expected to be highly positive.

GST 2.0 is set to boost growth, innovation, and competitiveness, and create new opportunities for India’s entrepreneurial ecosystem.