In a move aimed at reducing the tax burden and easing compliance for micro-businesses, the Government of India is considering a proposal to relax Input Tax Credit (ITC) norms for sole traders registered under the Goods and Services Tax (GST) framework. The proposal, currently under review by the GST Council, is expected to benefit thousands of small proprietorships operating in sectors such as retail, services, and manufacturing that often face challenges in maintaining strict documentary requirements for claiming input credit on purchases.

Under the current GST law, businesses can claim ITC on inputs used for business purposes only if the supplier has uploaded the invoice and paid the applicable tax. However, for sole traders—especially those operating in semi-urban and rural areas—supplier non-compliance, invoice mismatches, and procedural delays often result in denial of credit, even when genuine purchases have been made. The proposed reform would allow provisional ITC claims up to a specified percentage even in the absence of matched invoices, thereby ensuring better working capital availability for sole proprietors.

Government officials have emphasized that the move is part of a broader push to simplify GST compliance for micro-enterprises and promote voluntary formalization. If approved, the relaxation would be accompanied by safeguards to prevent misuse, including caps on claim limits, audit trails, and verification through digital records. The proposal has been welcomed by trade associations, tax experts, and small business advocacy groups, who argue that input credit barriers have disproportionately affected India’s smallest businesses. The final decision is expected to be discussed in the upcoming GST Council meeting, with implementation possible in the next financial year if consensus is reached.