New Delhi, June 2 -- Every month, Deepali Bhagat is taxed on income that hasn't reached her.

The founder of a small ed-tech firm in Bengaluru, Bhagat must pay goods and services tax (GST) on every invoice she raises-even when clients delay payments for months. The burden eats into her working capital, sometimes pushing her to borrow or dip into savings just to stay compliant. By year-end, nearly 3% of her revenue is lost to GST on unpaid dues.

Bhagat's not alone. This is a growing pain point for countless small businesses across India.

This cash flow crunch stems from how GST is structured-on an accrual basis. That means businesses must pay GST as soon as an invoice is raised, not when the money actually comes in.

Under GST rules, bus...