The Goods and Services Tax (GST), implemented in India in 2017, introduced a comprehensive Input Tax Credit (ITC) mechanism with the objective of eliminating the cascading effect of taxes and improving liquidity for businesses. This study examines the effectiveness of ITC among small and medium enterprises (SMEs) by analysing their level of awareness, utilization patterns, challenges faced, and the impact of ITC on cash flow. Primary data were collected from 30 GST-registered SMEs in Ettumanoor, Kerala, covering manufacturing, trading, and service sectors. Descriptive statistics and Chi-square tests were employed for analysis. The findings reveal that while awareness of ITC provisions is relatively high (83.3%), procedural challenges—especially invoice mismatches and blocked credits—significantly reduce its effective utilization. The study further confirms a strong positive association between ITC utilization and improvement in cash flow. The paper concludes that simplification of procedures, improved supplier compliance, and targeted training programmes are essential to enhance ITC effectiveness among SMEs.
Philip et al. (Tue,) studied this question.