The introduction of the Goods and Services Tax (GST) in India on 1 July 2017 marked one of the most significant indirect tax reforms in the country’s economic history. GST replaced multiple indirect taxes such as Value Added Tax (VAT), Service Tax, Excise Duty, Entry Tax, and Central Sales Tax with a unified taxation framework aimed at creating a single national market. This study examines the impact of GST on Small and Medium Enterprises (SMEs) in India, focusing on operational efficiency, tax compliance, financial performance, transparency, and business formalization. SMEs constitute a critical component of the Indian economy by contributing significantly to employment generation, industrial production, exports, and entrepreneurship development. Therefore, understanding the implications of GST on this sector is essential for policymakers, researchers, and business practitioners.

The research adopts a qualitative and descriptive research design based primarily on secondary data collected from journals, government reports, books, official GST publications, and research articles published between 2015 and 2026. The study evaluates both positive and negative consequences of GST implementation on SMEs. Descriptive statistical tools, comparative analysis, correlation analysis, t-test interpretation, and ANOVA-based interpretations are used to identify key trends and patterns in SME performance before and after GST implementation.

The findings reveal that GST has positively influenced SMEs through simplification of taxation, elimination of cascading taxes, increased transparency, improved interstate trade, better input tax credit mechanisms, and enhancement of supply chain efficiency. The reform also encouraged digitalization and formalization of businesses. However, the study identifies several challenges including higher compliance costs, technological difficulties, working capital constraints, multiple state registrations, and frequent return filing requirements. Small enterprises with limited technical and financial resources were disproportionately affected during the transition period.

The study concludes that although GST created short-term operational difficulties for SMEs, its long-term impact has been largely beneficial in terms of business growth, transparency, and market integration. The paper recommends simplification of compliance procedures, increased digital literacy support, faster refund mechanisms, and sector-specific policy assistance to strengthen the SME ecosystem under the GST regime.