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Input Tax Credit Efficiency and Working Capital Dynamics under GST: Evidence from the Ichalkaranji Power loom Cluster

Author Affiliations

  • 1Department of Commerce, Government First Grade College, Rabakavi-Banahatti, Bagalkot, Karnataka, India

Res. J. Management Sci., Volume 15, Issue (2), Pages 17-22, May,6 (2026)

Abstract

The introduction of the Goods and Services Tax (GST) in India brought major changes to the country's indirect taxation system, which particularly affected the operations of micro, small, and medium enterprises (MSMEs). The research investigates how Input Tax Credit (ITC) efficiency affects the working capital operations of businesses located in the Ichalkaranji powerloom textile cluster. The research study used primary data collection methods to gather information from 60 textile MSMEs through a structured questionnaire, which included a five-point Likert scale. The researchers used statistical methods such as descriptive analysis, Cronbach's alpha, correlation analysis, and regression analysis to analyze the data. The research results demonstrate that ITC inefficiencies create two main problems: delays and procedural difficulties that increase working capital constraints for businesses, while GST compliance requirements create additional liquidity challenges for businesses. The correlation results show a strong negative correlation between ITC efficiency and working capital constraints, which shows an inverse relationship between the two variables (r = -0.62), while regression analysis shows that ITC efficiency serves as the main predictor variable which explains 52% of financial constraints. The research establishes that business performance declines because of working capital constraints that businesses experience. The research shows that GST implementation brought better transparency and formalization to the tax system, but existing ITC system problems and compliance requirements create major financial difficulties for textile businesses. The research results demonstrate that the sector needs policy changes that will increase ITC efficiency and make compliance easier while creating better financial assistance systems to promote sustainable business growth and competitive advantages.

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