Impact Of Gst On Accounting Practices Of Small And Medium Sized Businesses In India

Abstract

One of the largest indirect tax reforms in Indian economic history, the Goods and Services Tax (GST) came into 
effect on July 1St, 2017 leading to an almost complete revamping of the SME compliance and accounting 
environment. The present empirical study explores the role of GST in changing accounting practices of Indian 
SMEs with a particular focus on bookkeeping, adoption of digital accounting software, compliance cost and 
financial reporting transparency. Structured questionnaire-based survey was conducted with 250 SME owners, 
accountants and finance managers from four key commercial regions of India: Madhya Pradesh, Maharashtra, 
Gujarat and Delhi NCR. Descriptive statistics, chi-square tests, paired-sample t-tests and Pearson correlation 
analysis were used to analyse the data gathered to confirm association between GST compliance requirement and 
accounting behaviour. The survey shows that GST has propelled up the usage of computerized and cloud-based 
accounting systems, with software adoption increasing from 34% pre-GST to a remarkable 81% after it was 
implemented across SMEs. But the report also finds a significant increase in compliance costs, with monthly 
average spending on tax-related services soaring nearly 58 per cent and heavy reliance on professional 
accountants. The intensity of GST compliance was found to correlate positively (r = 0.70) with the extent of digital 
recordkeeping adopted by firms. Such results corroborate the core hypothesis of this paper, which is that GST 
has in some portion been an enabler for the formalization and digitization of SME accounting practices in India 
while simultaneously imposing costs. Finally, the paper concluded with specific government aid and easier filing 
and subsidization of accounting software to ease transitioning burdens among smaller businesses.