Government Starts All India Drive to Bring Informal Sector Under GST, Say Sources

The Government of India has started a big campaign across the country to stop tax evasion and collect more revenue. The central government wants to bring businesses that work informally (without proper registration) into the formal GST (Goods and Services Tax) system. According to sources, the Ministry of Finance has told tax officials to reach out to unregistered businesses in all parts of the country.

This new campaign has several goals: study markets where people mostly use cash, connect with busy commercial areas, and find potential taxpayers among food sellers, popular restaurants, small shop owners, and service providers who are not part of the GST system yet, sources said.

“The government has two main goals: bring unregistered businesses into the tax system and reduce cash-based transactions that are not accounted for,” sources said. They added that “this is a long-standing problem in India’s economy and we need continuous efforts to fix this.”

“Increased Registrations, Improved Oversight”

Sources also say that this initiative is not meant to trouble businesses but will focus on communication and building trust with small businesses. “More registrations mean more monitoring, but also better following of rules, smoother business operations, and possibly lower tax rates for everyone in the future,” a senior official said.

The government believes that when more people pay taxes, the tax burden on each person becomes less, which can help in reducing tax rates over time.

Record GST Revenue Boosted by Surge in New Taxpayers

India achieved its highest-ever monthly GST collections in April 2025, with revenues reaching Rs. 2.36 lakh crore—a year-on-year growth of 12.6%.

April 2025 saw record-breaking GST collections, helped greatly by new taxpayers joining the system. According to the latest official numbers, over 2.5 million new GST registrations were recorded in the financial year 2025, bringing the total to 15 million registered taxpayers.

Domestic GST collections rose by over 9%, showing continued strength in buying and production activities. This trend matches with broader signs of recovery in both rural and urban demand.

This growth in the taxpayer base has had a clear impact on state-level collections and compliance patterns.

A growing tax base also played a key role. More than 2.5 million new GST registrations were recorded in FY25, bringing the total to 15 million. Uttar Pradesh, Maharashtra, Gujarat, Karnataka, and Tamil Nadu now each have over a million registered taxpayers. Maharashtra leads in total collections, while Uttar Pradesh has the highest number of registrations.

Uttar Pradesh leads in terms of total GST registrations, now crossing the 1 million mark. Maharashtra remains the top contributor to overall GST collections, benefiting from a strong mix of industrial and service-sector taxpayers. Gujarat, Karnataka, and Tamil Nadu have also become key GST states with over a million registered businesses each.

Analysis: Positive Changes as Informal Sector Becomes Formal

The Indian economy has long struggled with a large informal sector, estimated to account for nearly 45-50% of total employment and a significant share of economic output. Experts believe the government’s new initiative, if implemented effectively, could bring structural improvements.

According to the sources, “Making the informal economy formal is important not just for tax collection, but for improving productivity, access to loans, and social security for workers. Since the GST system provides a unique digital record, this can be a game-changer for long-term policy planning. Also, the reason for the highest ever GST revenues is two-fold — growth in the economy and better compliance of taxpayers.”

Although the increase in formal business activity has the potential to attract more foreign direct investment (FDI), improve ease of doing business rankings, and boost investor confidence in India’s economic management.

Meanwhile, according to the sources, the government was contacted for comment, but an email query to the Ministry of Finance was not answered.

Though the direction is clear India is speeding up its push to make the economy more formal, and GST registration is becoming a key tool in that strategy.