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Budget 2025 changes-GST

The Union Budget 2025-26 was tabled by the Union Minister for Finance and Corporate Affairs, Smt Nirmala Sitharaman in the Parliament on 01^st February 2025. The Budget proposes changes in GST laws to ensure trade facilitation.

These proposed amendments include:

Provision for distribution of input tax credit by Input Service Distributor in respect of inter-state supplies on which tax has to be paid on a reverse charge basis, with effect from 1st April 2025.
- Clause (61) is being amended to explicitly provide for the distribution of input tax credit by the Input Service Distributor in respect of interstate supplies on which tax has to be paid on a reverse charge basis, by inserting a reference to sub-section (3) and sub-section (4) of section 5 of Integrated Goods and Services Tax Act. This amendment will be effective from 1st April 2025.
- Section 20(1) and Section 20(2) are being amended to explicitly provide for the distribution of input tax credit by the Input Service Distributor in respect of inter-state supplies, on which tax has to be paid on a reverse charge basis, by inserting reference to sub-section (3) and sub-section (4) of section 5 of Integrated Goods and Services Tax Act in sub-section (1) of section 20. The amendment will be effective from 1st April 2025.
Provision for reversal of corresponding input tax credit required in respect of a credit note, if availed, for reduction of tax liability of the supplier.
- The Proviso to sub-section (2) of section 34 is being amended to explicitly provide for the requirement of reversal of corresponding input tax credit in respect of a credit note, if availed, by the registered recipient, for reduction of tax liability of the supplier in respect of the said credit note.
10% mandatory pre-deposit of penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any tax demand.
- Section 107(6) is being amended to provide for a 10% mandatory predeposit of penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any demand for tax.
- Section 112(8) is amended to provide for a 10% mandatory pre-deposit of penalty amount for appeals before the Appellate Tribunal in cases involving only demand of penalty without any tax demand.
Provision for penalties for contraventions of provisions related to the Track and Trace Mechanism.

a) Section 38(1) is being amended to omit the expression "autogenerated".

b) Section 38(2) is being amended to omit the expression "autogenerated" and to insert the expression "including" after the words "by the recipient" in clause (b) to make the said clause more inclusive.

c) Section 38(2) is also being amended to insert a new clause (c) to provide an enabling clause to prescribe other details to be made available in the statement of input tax credit.

Section 39(1) is being amended to provide an enabling clause to prescribe certain conditions and restrictions for filing of returns.
A new Section 122B is being inserted to provide penalties for contraventions of provisions related to the Track and Trace Mechanism provided under section 148A.
Section 148A is being inserted to provide for enabling mechanism for a Track and Trace Mechanism for specified commodities.
A new clause (112A) to provide a definition of Unique Identification Marking for implementation of Track and Trace Mechanism.

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A provision in Schedule III of the CGST Act, 2017 stating that the supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area shall be treated neither as a supply of goods nor as a supply of services. Also, no refund of tax already paid will be available for such transactions. This will be applicable with effect from 01.7.2017.

Schedule III is being amended, w.e.f. 01.7.2017 to,₋

a) Insert a new Entry (aa) in paragraph 8 to provide that the supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area shall be treated neither as supply of goods nor as supply of services.

b) Amend Explanation 2, w.e.f. 01.07.2017 to clarify that the said explanation would be applicable in respect of entry (a) of paragraph 8.

c) Insert Explanation 3 to define the terms 'Special Economic Zone', 'Free Trade Warehousing Zone', and 'Domestic Tariff Area', for the purpose of the proposed entry (aa) in paragraph 8.

d) To provide that no refund of tax already paid will be available for the transactions referred to above.

Inclusion of definitions of 'Local Fund' and 'Municipal Fund' used in the definition of "local authority".
- Clause (69) (c) is being amended to insert an Explanation to provide for definitions of the terms 'Local Fund' and 'Municipal Fund' used in the definition of "local authority" under the said clause so as to clarify the scope of the said terms.
Certain conditions and restrictions for filing of returns are to be included.
Amendments in Sections 12 and 13 of the CGST Act, 2017
- Sub-sections (4) of Section 12 and Sub-sections (4) of Section 13 relating to time of supply in respect of vouchers are being omitted.
Amendments in Section 17 of the CGST Act, 2017
- Clause (d) of sub-section (5) is being amended to substitute the words "plant or machinery" with the words "plant and machinery" with effect from 1st July 2017.

Conclusion

‍The Union Budget 2025-26 introduces key GST amendments aimed at improving compliance, trade facilitation, and tax governance. Changes like ITC distribution for reverse charge transactions, mandatory pre-deposits for penalty appeals, and stricter Track and Trace compliance enhance transparency and efficiency.Clarifications on SEZ warehousing, local authority definitions, and time of supply provisions further streamline GST regulations. Businesses must stay updated and leverage automation to ensure seamless compliance and optimize tax management in this evolving regulatory landscape.