The GST regime, though aimed at simplifying India’s indirect tax structure, often ends up burdening small businesses with compliance requirements that don’t match their business reality. Since its introduction in 2017, GST has evolved significantly—but the turnover threshold for registration has barely changed.

Fast forward to July 2025, and the GST Council is now actively considering increasing the mandatory turnover limits for GST registration—thanks to growing pressure from industry bodies and numerous GST notices sent to small traders.

Current GST Turnover Limits (As of AY 2025–26)

Before we get into the proposed changes, here’s a snapshot of the existing turnover thresholds for GST registration:

Type of Supply	Threshold for GST Registration
Supply of Goods	₹40 lakh (Normal states)
Supply of Specified Goods (i.e. Pan Masala, Ice Cream, Tobacco et)	₹20 lakh
Supply of Services	₹20 lakh (All states)
Special Category States (e.g., Manipur, Mizoram)	₹10 lakh for both goods and services

Composition Scheme Thresholds:

₹1.5 crore for goods
₹50 lakh for services

These thresholds haven’t changed since 2019 for goods and since inception (2017) for services.

What Is the Government Proposing in 2025?

As per credible sources and industry reports, the GST Council is likely to propose the following changes in its 56th meeting (expected August 2025):

Supply Type	Existing Threshold	Proposed New Limit
Goods	₹40 lakh	₹1 crore
Services	₹20 lakh	₹50 lakh

Why Is This Move Being Considered?

GST Notices Triggered by UPI Receipts

In the past year, especially across states like Karnataka and Maharashtra, small shopkeepers and freelancers received GST notices for crossing turnover limits—often due to UPI and QR-code payments, not cash.

For example, a small paan shop receiving ₹25–30 lakh annually via UPI (but making less than ₹3 lakh in actual income) was flagged for non-registration under GST. This triggered an outcry from industry groups, arguing that “digital turnover” doesn’t always equate to real business scale.

Inflation & Business Growth

Since GST’s introduction:

India’s inflation rate has increased by over 30%
Digital payments have multiplied several times
Nominal turnovers look inflated, even if real margins are shrinking

So, a ₹20 lakh service limit today doesn’t reflect the ground business realities of 2025. A natural indexation of limits is overdue.

Ease of Doing Business & MSME Push

The government has been consistently focusing on ease of compliance, especially for MSMEs. By increasing the limit:

Lakhs of small entities will fall out of GST purview
Department resources can be redirected towards larger evasions
The volume of returns filed may reduce, allowing better scrutiny of higher-risk profiles

Income Tax & GST Mismatch

There’s a visible gap in threshold policies between Income Tax and GST laws.

Tax Type	Threshold
Presumptive Income Tax (Sec 44AD)	₹2 crore
GST (Goods)	₹40 lakh
GST (Services)	₹20 lakh

This discrepancy causes confusion. A person who isn’t liable to pay advance tax or file ITR-3 under IT Act is often forced to register under GST—even if they make ₹25 lakh in receipts with ₹3 lakh in actual profit.

Legal Backing – What the Law Says

Section 22 of CGST Act, 2017:

“Every supplier shall be liable to be registered under this Act in the State from where he makes a taxable supply of goods or services if his aggregate turnover in a financial year exceeds ₹20 lakh.”

For goods, Notification No. 10/2019–Central Tax raised this to ₹40 lakh for eligible states. The states had to opt-in, and not all did.

The problem? “Aggregate turnover” includes all supplies—taxable, exempt, exports, and inter-branch transfers. It does not include GST taxes or inward supplies.

Real-Life Example – How a Small Trader Gets Stuck

Let’s take the case of Ravi, a stationery shop owner in Gujarat.

Total UPI receipts in FY 2024–25 = ₹42 lakh
Cash receipts = ₹5 lakh
GST threshold = ₹40 lakh (for goods)

Even though Ravi operates a 150 sq ft shop and earns around ₹35,000/month in actual income, he’s now legally required to register for GST, file returns, maintain books, and issue invoices.

With the proposed threshold increased to ₹1 crore:

Ravi won’t need to register
He can continue business with low compliance
No need to hire a lawyer, CA or buy GST software

Composition Scheme vs. Threshold Increase – What’s Better?

Many argue that traders could opt for Composition Scheme instead of seeking higher thresholds.

But there are differences:

Feature	Composition Scheme	Higher Threshold
Returns	Quarterly	None required (if unregistered)
Tax Rate	1% or 6% (services)	No GST payable
ITC Claim	Not Allowed	Not Applicable
Inter-State Supply	Not Allowed	Not Applicable (unless registered)
Bill Format	Bill of Supply only	No compliance at all

So, a higher threshold offers complete relief, while Composition still involves limited compliance.

Impact on Freelancers, Consultants, and Small Service Providers

Freelancers doing ₹25–45 lakh in yearly billing are currently forced into GST.
If the ₹50 lakh limit is approved, they can avoid:
- Monthly GSTR-1 and GSTR-3B filings
- E-invoicing complications
- Audit triggers under GST

This is especially important for:

Tutors
Designers
Influencers
IT consultants

Timeline – When Will This Be Implemented?

Date	Status
July 2025	Discussion initiated by Council
August 2025	Proposal likely in 56th GST Meeting
Post-August 2025	Notification + Gazette
Likely Effective	October 1, 2025 or January 1, 2026

Until notified officially, existing limits apply. Businesses must remain compliant to avoid penalties.

Key Considerations for Small Businesses

Turnover = Total Receipts, not net income
Even exempt supplies count toward aggregate turnover
Cash + UPI + Cheque receipts are all included
If you crossed the limit, GST registration is mandatory—even if you didn’t know
Mere proposal doesn’t change the law. Wait for official notification

Frequently Asked Questions (FAQs)

Is the GST threshold officially increased?

Not yet. The proposal is expected to be considered in the upcoming GST Council meeting.

Can I deregister if my turnover is below the new limit?

Yes, after the new limit is notified. Until then, you must continue compliance.

Will Composition Scheme limits be raised too?

As of now, no such proposal is under consideration.

Does digital payment mean I must register?

If your total turnover (including UPI receipts) crosses the limit, yes. Payment mode doesn’t matter.

Will the new limit apply retrospectively?

No. GST law changes apply prospectively only—from a notified date.

Conclusion – A Much-Needed Move in 2025

The intent of the GST Council to raise turnover limits reflects the maturity of the regime. With nearly 1.4 crore registered GST taxpayers and rapidly rising digitalization, it’s time to remove unnecessary compliance from low-volume, honest traders and professionals.

This move will: