Key GST Developments in Union Budget 2025: What Businesses Need to Know

The Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman presented the Union Budget 2024-25 in Parliament, on February 02, 2025.  Majorly the changes were earlier recommended by the GST Council in its 55th GST Council Meeting held on 21.12.2024. The key highlights of the proposed changes under GST Law are as follows:

• Section 2 be amended so as to add
• Section 2(61) – Input Service Distributor –

To categorically include interstate Reverse Charge Mechanism (RCM) transactions within ISD by making an inclusion of references to supplies subject to tax under section 5(3) and 5(4) of IGST Act, 2017 within the said provisions.

Amendment in Section 2(69) Clause (c) – Local Authority – Presently Clause (c) defines "local authority" and refers funds like Local Fund and Municipal Fund but does not explain them properly.

Explanation Inserted – In section 2(69), under clause (c), explanation would be incorporated explaining the meaning of Local Fund and Municipal Fund respectively.

"local fund" means any fund under the control or management of an authority of a local self-government established for discharging civic functions in relation to a Panchayat area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called;

"Municipal fund" means any fund under the control or management of an authority of a local self-government established for discharging civic functions in relation to a Metropolitan area or Municipal area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called.

Insertion of definition of "unique identification marking" Section 2(116A) – "unique identification marking" means the unique identification marking referred to in clause (b) of sub-section (2) of section 148A and includes a digital stamp, digital mark or any other similar marking, which is unique, secure and non-removable;'

This is to insert an enabling provision in CGST Act, 2017 through Section 148A so as to empower the government to enforce the Track and Trace Mechanism for specified evasion-prone commodities.

• Section 17(5) amended to change phrase "plant or machinery" to "plant and machinery", retrospectively from the date of coming into force, 1 July 2017: The Section 17(5) of the CGST Act, 2017 which uses the plant or machinery" should be substituted with the phrase "plant and machinery".

Insertion of Explanation – That the expression "plant or machinery" must be read as "plant and machinery" and the explanation applies retrospectively and so overrules earlier constructions made by courts, tribunals or other authorities and the words "notwithstanding anything contained in the foregoing provisions" would mean that the decision will override all previous conflicting decisions and legal precedents.

• Amendment in Section 20 i.e. Manner of distribution of credit by Input Service Distributor

To explicitly include interstate Reverse Charge Mechanism (RCM) transactions under ISD, by including reference to supplies subject to tax under section 5(3) and 5(4) of IGST Act, 2017 in the said provisions. Also, similar amendments are proposed to be made under various sections of CGST Act. These amendments to be made effective w.e.f. 01.4.2025.

• Proviso to Section 34(2) concerning the output tax liability of a supplier where he issues a credit note

Section 34(2) of the CGST Act provides an opportunity for the supplier to offset his output tax liability if there is issuance of a credit note.

Proviso to the Amended Proviso: Additional conditions for setting off the reduction of output tax liability

There is no allowance where:

ITC claimed by the recipient: If the recipient (buyer) has already availed of the ITC on the original invoice and hasn't reversed that ITC after receipt of the credit note, then the supplier cannot reduce their output tax liability.

The incidence of tax has been passed on to another party (in other cases): If the tax burden already has been passed on to a third party, for instance, to a consumer, then the supplier cannot claim a reduction in his liability of tax.

• Amendment in Section 38 relating to furnishing details of inward supplies:
• Amendment in Section 39 relating to furnishing of returns

Introduction of Conditions and Restrictions – The amendment empowers the government to make conditions and restrictions for filing returns in addition to prescribing the timeline. Adding "conditions and restrictions" to it gives more flexibility to the government to introduce specific rules for return filing through) without amending the GST Act.

• Amendment in Section 107(6) -with the effect of reducing the amount of pre-deposit required to be paid for filing of appeals before Appellate Authority under for demand involving Penalty only

Reduce the quantum of pre-deposit for filing of appeals before Appellate Authority in cases where the dispute is only regarding the penalties and not about the actual demand. Moreover, the pre-deposit quantum has to be reduced to 10 percent of the penalty amount from the current 25 percent of the penalty amount.

According to Section 107(6) of the CGST Act, 2017, no appeal before the Appellate Authority shall be filed against an order u/s 129(3), unless a Specified percentage of penalty involved has been deposited as pre-deposit. Besides, Section 129(3) of the CGST Act, provides that the proper officer detaining or seizing goods or conveyances, shall issue notice in 'FORM GST MOV-07' within seven days of such detention or seizure, specifying the tax and penalty payable.

• Section 112: amendment therein so as to specify the amount of pre-deposit required to be deposited before Appellate Tribunal under section 129(3) against an order of Appellate Authority that only impose penalty on us.

Creation of a new proviso to section 112(8) of the CGST Act, 2017 including the payment of pre-deposit at 10% for the filing of appeals before the Appellate Tribunal in cases having only demand of penalty without involving the demand of tax.

• Creation of a new Section 122B – Penalty for failure to comply with track and trace mechanism

Whoever contravenes section 148A (newly insertion section the finance Bill) shall be liable to a penalty of such further amount as is determined under clause (a), whichever is greater between the following:

• ₹1,00,000
• 10% of the tax payable on such goods.

In addition to Other Penalties: Such penalty shall in addition to any other penalties which may be specified under Chapter XV.

K. Insertion of New Section 148A – Track and trace mechanism for certain goods

To insert an enabling provision in CGST Act, 2017 through Section 148A so as to empower the government to enforce the Track and Trace Mechanism for specified evasion-prone commodities.

Earlier, the Council in 55th Meeting taking a significant step to plug leakage had approved a proposal to implement 'Track and Trace Mechanism' for specified evasion-prone commodities, under which a unique mark will be affixed on such goods or packages to trace them throughout the supply chain. The Track and Trace Mechanism will be brought in to aid the authorities to trace goods through every stage of the supply chain and avoid the chances of tax evasion or under-invoicing and similar fraudulent activities significantly.