A friend of mine started a consulting business.
Nothing fancy.
A small team. A few laptops. A rented setup. And a lot of hope.
Like thousands of first-generation founders in India, he was not building a unicorn. He was simply trying to build something of his own.
Then reality hit.
The moment his revenue crossed the GST threshold, compliance kicked in. And for a small services business, that can feel brutal. GST is triggered by turnover, not by whether the founder is actually making decent money yet. In the early days, when margins are thin and every rupee matters, this changes the entire psychology of running a business.
Before starting the company, his salary from a job was actually higher than the revenue of the business. Back then, life was much simpler. Earn. Save. File one income tax return. Move on.
Now he has to think about registrations, recurring filings, accountant fees, reconciliation, notices, deadlines, and working capital pressure. In theory, this is called formalisation. In practice, for many small businesses, it feels like being asked to behave like a mature company before they have even learned how to stand.
That is the real problem.
India often talks about startups, entrepreneurship, innovation, and job creation. But somewhere between the speech and the system, the small business owner gets crushed under compliance.
And this is not only about one consulting founder.
Take another case.
Imagine a housewife who wants to start a small online shop from home.
This is exactly the kind of story India should celebrate.
Very low investment.
Minimal infrastructure.
Little working capital.
Work from home.
Use spare time productively.
Earn some extra income.
Maybe grow into a full business one day.
At first glance, this sounds easy. If her turnover remains below the threshold, she may assume GST is not her concern yet. But then she runs into the fine print.
The moment a very small seller wants to use e-commerce or sell beyond simple local boundaries, compliance can arrive much earlier than expected. CBIC guidance has long stated that suppliers of goods through an e-commerce operator are required to register irrespective of turnover, while a limited exemption was specifically carved out for certain suppliers of services through e-commerce platforms. The general registration threshold for many service providers also remains ₹20 lakh, with lower limits in special category states.
Now think about what that means for a woman trying to run a tiny online shop from her home.
Before she has built scale, she may already need registration.
Before she has stable cash flow, she may already need compliance support.
Before she has earned meaningfully, she may already need to spend on professional help.
And then comes another practical hurdle: the place of business. GST registration requires a principal place of business and supporting documents. Yes, the rules do allow rented, shared, and consent-based premises, and even home or co-working arrangements may be used with the right paperwork. But for many small sellers, especially women working from home in rented accommodation, this is easier said than done. If the landlord is hesitant, if the paperwork is incomplete, or if the family does not fully support the effort, a micro-business can get stuck before it really begins.
So the problem is not only tax.
The problem is friction.
Too much friction too early.
This is where policy often fails to understand the life cycle of a business.
In the first few years, most small businesses are fragile. Revenue is uncertain. Customers are inconsistent. Costs are high. Founders are underpaid. Households subsidise the dream. Many entrepreneurs are not “earning” from the business yet; they are feeding it, protecting it, and hoping it survives.
That is precisely the stage when the state should make life easier.
Instead, we often do the opposite.
We impose compliance burdens too early.
We make micro-entrepreneurs hire accountants before they hire employees.
We make tiny firms worry about filings before they have found product-market fit.
We turn what should be a period of experimentation into a period of anxiety.
And then we wonder why so many people ask themselves:
Should I continue building this business?
Or should I just go back to a job?
That question should worry all of us.
Because when a founder gives up, India does not just lose one business. It loses future jobs, future tax revenue, future local supply chains, and future confidence.
A country that wants more enterprise cannot keep treating newborn businesses like established corporations.
Toddlers should be allowed to grow.
Not taxed to death.
This is why India needs to rethink the GST burden on very small businesses, especially service businesses and home-based entrepreneurs.
The threshold for services is too low for the realities of today’s economy. After years of inflation, rising rents, higher professional costs, and tighter working capital, ₹20 lakh does not mean what it did when GST was introduced. A higher threshold, whether ₹50 lakh or even ₹1 crore for very small service providers, would give breathing room to early-stage businesses before full compliance kicks in. The current threshold referenced in CBIC guidance remains ₹20 lakh in many states. (CBIC GST)
The second reform is just as important: remove the hidden traps and fine print that catch first-time entrepreneurs by surprise. Let the rules be clear, transparent, and easy to understand. A person starting a side business from home should not discover halfway through the journey that the real challenge is not finding customers, but understanding technical registration obligations and paperwork.
The third reform is to reduce compliance intensity for genuinely small businesses. Lower professional costs, simpler filing systems, fewer procedural hurdles, and cleaner rules would do more for ease of doing business than another slogan ever will.
Because real ease of doing business is not about how large corporations experience India.
It is about how a first-time founder experiences India.
It is about whether a small consultant can stay in business long enough to grow.
It is about whether a woman with an idea can turn a spare room into an income stream.
It is about whether the system encourages ambition or punishes it.
India does not need fewer entrepreneurs.
It needs fewer obstacles in the path of entrepreneurs.
Let businesses grow first.
Let them create jobs first.
Let them become stable first.
Then tax them.
