India’s New Mission Formalise Informal Economy Through GST Compliance
In a significant move to widen the tax base, the Government of India has launched a nationwide drive to formalise the informal economy and boost GST compliance. As per sources close to the development, this drive focuses on unregistered businesses, cash-heavy sectors, and digitally weak supply chains.
This initiative is part of the broader policy to improve tax compliance, reduce revenue leakages, and strengthen the GST ecosystem.
What Is the Informal Economy?
The informal economy consists of businesses and workers that are not registered under statutory tax or labour laws. These include:
- Roadside vendors
- Small shops without GSTIN
- Unregistered manufacturers and service providers
- Labour-intensive units operating in cash
- Contractors without formal books of accounts
Problem: These entities don’t pay GST, don’t generate e-invoices, and create unfair competition for compliant taxpayers.
Why This Pan-India GST Compliance Drive Now?
According to senior officials:
- GST revenue has plateaued in some states despite increased consumption.
- Digital trails are missing in supply chains dominated by unregistered units.
- The Council wants deeper compliance before considering rate rationalisation.
🔍 Expert View:
“Formalising the informal economy is key to sustainable tax growth and fairness. If one segment escapes GST, it burdens the compliant taxpayer,” says a retired CBIC officer.
Key Focus Areas of the Drive
The central and state GST authorities are targeting:
1. Unregistered Businesses in High-Risk Sectors
- Construction
- Textile & garments
- Mobile and electronics resale
- Event management
- Food delivery via informal cloud kitchens
2. Cash-Based Transactions
Authorities are inspecting suspicious transactions involving:
- Large-scale cash purchases
- Services without tax invoices
- High turnover with zero GST filings
3. E-Way Bill and E-Invoice Gaps
Mismatch found in:
| Parameter | Registered Dealer | Informal Unit |
|---|---|---|
| E-Way Bill Usage | Mandatory | Not used |
| GSTIN on Invoice | Present | Absent |
| ITC Claim Possible? | Yes | No |
How Will It Impact Small Businesses?
This move brings both challenges and opportunities for small entrepreneurs:
Challenges:
- Need to register under GST if turnover > ₹20 lakh (₹10 lakh for NE/Hill states)
- Must maintain digital records and file returns
- Cash-heavy units may face audits or inquiries
Opportunities:
- Access to formal credit via invoice-based lending
- Eligible to sell on e-commerce platforms (GSTIN mandatory)
- Build trustworthy brand with tax-compliant reputation
How to Prepare: A Simple Checklist
Here’s a quick 5-step GST readiness guide:
- Check if your turnover exceeds the limit (₹20 lakh/₹10 lakh)
- Apply for GSTIN via gst.gov.in
- Start issuing tax invoices and maintain purchase records
- File monthly or quarterly returns (Form GSTR-1, GSTR-3B)
- Use digital payment modes to reduce cash dependency
Legal Backing
This drive aligns with:
- CGST Act, Section 22: Compulsory registration if turnover crosses limit
- Section 24: Mandatory registration for e-commerce sellers and inter-state suppliers
- Section 67: Powers to inspect unregistered premises or suspect fraud
Summary
The Indian government has launched a nationwide drive to formalise the informal economy and boost GST compliance. Targeting unregistered businesses, cash-heavy transactions, and invoice mismatches, this initiative aims to strengthen the tax base and ensure fairness across sectors.
FAQs on GST Drive to Formalise Informal Economy
Q1. Is GST registration mandatory for all informal businesses now?
Not all, but if your turnover exceeds ₹20 lakh (₹10 lakh for special category states), registration is compulsory.
Q2. Will authorities inspect my shop if I don’t have a GSTIN?
Yes, especially if you deal in high-risk sectors or show large cash inflows.
Q3. Can small businesses benefit from registering?
Absolutely. GST registration helps access credit, formalise operations, and grow via digital/e-commerce platforms.
Final Thoughts
India’s GST framework is evolving, and this pan-India compliance drive is a clear push to bring more players into the formal net. For small businesses, this is not just a legal compulsion—it’s a growth opportunity.