One GST return a year? New scheme could ease compliance for 16 lakh small businesses

Small businesses selling only to consumers may soon have the option to file GST returns annually. The GST Council has approved a plan for eligible taxpayers with turnover up to Rs 5 crore. Currently, these businesses file monthly returns under the existing GST structure. The new scheme is expected to ease compliance burdens and allow quarterly tax payments. Changes are set to take effect from April 1, 2027.

Small businesses that sell only to consumers may soon have to file just one GST return a year, with the GST Council on Thursday approving in principle an optional scheme for taxpayers with turnover up to Rs 5 crore.

Under the scheme, eligible taxpayers will file their return once a year and pay GST every quarter. The detailed framework, along with the changes in law needed to bring it in, will come before the Council at its next meeting.

Who can benefit

Of the 1.05 crore active GST taxpayers, about 16.85 lakh, or around 16 percent, report only supplies to consumers. Of these, 16.66 lakh, or 99 percent, have turnover below Rs 5 crore. Together, they account for less than 1 percent of the tax liability reported under GST, according to the note.

This means the scheme covers a large number of taxpayers, but the revenue at stake is small. Such businesses can include shops, salons and small eateries whose customers are individuals. Since individual consumers do not claim input tax credit, the returns these sellers file do not affect any other business's credit. Sellers who also supply to other businesses are outside the scheme.

What changes for them

By default, GST taxpayers have to file returns every month. Since January 2021, businesses with turnover up to Rs 5 crore have been able to opt for the quarterly return scheme, under which they file returns every quarter but pay tax every month.

The new scheme goes a step further. A seller who opts in will file one return a year and pay tax every quarter.

Why the Council is looking at process now

The meeting comes a year after the Council moved to a two-rate GST structure of 5 percent and 18 percent, with a 40 percent rate on a few goods, from September 22, 2025. Since then, taxable supply has risen from Rs 40.19 lakh crore a month to Rs 50.58 lakh crore, a rise of 25.8 percent. The effective tax rate on domestic supply has fallen from 14.55 percent to 13.13 percent. GST revenue has grown 11 percent in FY 2026-27 over the previous year, and 14.7 percent in June to August 2026 over the same months last year, the note says.

With the rate structure now settled, the Council has turned to how the tax works day to day, such as registration, returns and refunds. Ahead of the 56th Council meeting last year, Sitharaman had said that the next round of reforms would further reduce the compliance burden and make it easier for small businesses to thrive, according to an ANI report.

Other changes approved

The Council also removed the power of arrest under GST, raised the prosecution threshold from Rs 1 crore to Rs 5 crore and cut the general penalty from Rs 25,000 to Rs 10,000. No notice will be issued for amounts below Rs 10,000. The time limit for acknowledging a refund claim comes down from 15 days to 10.

For small online sellers, the Council approved an easier registration route. A seller will be able to declare the warehouse of an e-commerce operator in another state as the principal place of business there, with the operator's consent, according to the note on outcomes of the 57th Council meeting. The system will give this consent automatically. The seller will not need to set up separate premises in that state.

The seller must have a physical presence in at least one state, which stays the home state. The seller will get one registration per PAN in a state, and it will cover only supplies made through platforms, the note says. A seller who passes on credit of more than Rs 2.5 lakh a month will move to ordinary registration.

Finance Minister Nirmala Sitharaman said the reforms announced on Thursday would be implemented from April 1, 2027, the start of the next financial year. No GST rates were changed. Rate matters will now be taken up once a year, at one meeting set aside only for this purpose.