The Impact of Blocked Credit and Unavailability of Input Tax Credit on MSMEs in India: An Empirical Study

Anchit Sureka and Nabasmita Bordoloi

Journal of Tax Reform, 2024, vol. 10, issue 3, 572-590

Abstract: The Goods and Services Tax (GST) regime in India has brought about significant changes in the way businesses operate, particularly for Micro, Small, and Medium Enterprises (MSMEs). One of the key challenges faced by MSMEs under GST is the issue of blocked credits and non-availability of input tax credits (ITC). This study aims to examine the impact of these challenges on MSMEs in India and provide empirical evidence to support the findings. Identifying the specific provisions under GST that lead to blocked credits and non-availability of ITC for MSMEs, assessing the financial implications of these provisions on MSMEs and exploring potential solutions or policy recommendations to address these challenges are the main objectives of this particular research study. The study employs a mixed-methods approach, combining quantitative and qualitative data collection and analysis techniques. A comprehensive survey was conducted among a representative sample of 400 MSMEs across various sectors and regions in India, comprising 55% respondents from small enterprises, 30% micro-enterprises and the remaining 15% from medium enterprises. The results reveal that a significant proportion of MSMEs face challenges in claiming ITC due to provisions such as blocked credits for specific goods and services, compliance requirements, and lack of clarity in certain GST regulations. These challenges have led to increased working capital requirements, cash flow constraints, and higher operational costs for MSMEs, potentially impacting their competitiveness and growth prospects. Furthermore, the findings of this study highlight the need for policy interventions and regulatory reforms to streamline the GST regime for MSMEs.

Keywords: blocked credit; input tax credit; Indian MSMEs; compliance mechanisms; cash flow constraints (search for similar items in EconPapers)
JEL-codes: H20 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aiy:jnljtr:v:10:y:2024:i:3:p:572-590

DOI: 10.15826/jtr.2024.10.3.185

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