The Finance Bill 2025 introduces several crucial changes to the Goods and Services Tax (GST) framework, focusing on compliance, trade facilitation, and tax governance. Here’s a summary of the key amendments:
1. Input Service Distributor (ISD) – Reverse Charge Mechanism (RCM)
- ISDs will now be allowed to distribute Input Tax Credit (ITC) on inter-state supplies where tax is paid under Reverse Charge Mechanism (RCM).
- Effective from April 1, 2025, Sections 20(1) and 20(2) of the CGST Act are being amended to include references to Section 5(3) and 5(4) of the IGST Act.
- Under the revised provisions, ISDs can pay tax under RCM for inter-state service supplies and distribute ITC to distinct persons under the same PAN.
2. Track and Trace Mechanism for Specified Goods
- A new compliance mechanism is introduced under Section 148A of the CGST Act for tracking specified goods and certain taxable persons.
- Requires unique identification markings to prevent tax evasion in industries like pharmaceuticals, alcohol, and other regulated goods.
- Non-compliance will attract penalties under Section 122B of the CGST Act, with a minimum penalty of INR 1 Lakh or 10% of the disputed tax, whichever is higher.
3. Appeals – Pre-deposit for Penalty Cases
- Appeals related only to penalties (without tax demand) will require a pre-deposit of 10% of the penalty amount before filing with the Appellate Authority.
- This measure aims to discourage frivolous litigation and ensure genuine appeals.
4. Vouchers – Time of Supply Provisions Removed
- Sections 12(4) and 13(4) of the CGST Act related to the time of supply for vouchers are being omitted.
- Since GST is applicable on actual supply of goods or services, the time-of-supply concept for vouchers is no longer relevant.
5. GSTR-2B – Automated ITC Computation
- Under the Invoice Matching System (IMS) initiative, taxpayers will now be able to re-generate and re-computetheir GSTR-2B for better reconciliation of ITC.
6. Filing of Returns – Conditions for GSTR-3B
- The government introduces an enabling clause to impose specific conditions and restrictions for filing GSTR-3B returns, ensuring better compliance.
7. Definition of Local Authority – Clarification on ‘Local Fund’ & ‘Municipal Fund’
- Section 2(69)(c) of the CGST Act will be amended to insert an Explanation defining the terms ‘Local Fund’ and ‘Municipal Fund’.
- This amendment clarifies the scope of ‘local authority’ under GST.
8. Supply of Goods in SEZ & Free Trade Warehousing Zones
- Supplies of goods warehoused in Special Economic Zones (SEZs) or Free Trade Warehousing Zones (FTWZs)to any person before clearance for exports or Domestic Tariff Area (DTA) will be treated neither as supply of goods nor as supply of services.
- No tax refunds will be available for such transactions.
- The amendment is retrospectively effective from July 1, 2017.
9. Credit Notes – ITC Reversal Requirement
- The Proviso to Section 34(2) is being amended to explicitly require the recipient to reverse ITC when availing benefits of a credit note issued by the supplier.
- Suppliers can adjust tax liability using credit notes only if the recipient has reversed the corresponding ITC.
10. Section 17(5) – Amendment in Plant & Machinery Definition
- Section 17(5)(d) of the CGST Act is being modified to replace “plant or machinery” with “plant and machinery”.
- This change is retrospectively applicable from July 1, 2017, clarifying ITC eligibility on capital assets.
Conclusion
The Union Budget 2025-26 brings several key amendments to the GST law, aiming to streamline compliance, prevent tax evasion, and improve tax administration. Businesses must stay updated and leverage automation for seamless compliance in this evolving regulatory environment.
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