New GST System : Budget 2025

Union Budget 2024-25: Key Highlights of Proposed Changes Under GST Law

The Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman presented the Union Budget 2024-25 in Parliament, today i.e. 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:

The Key Highlights of the Budget relates to:

A. Amendment in Section 2 i.e. Definitions

1. Amendment in Section 2(61) – 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.
2. Amendment in Section 2(69) Clause (c) – Local Authority:
   • Currently, Clause (c) defines “local authority” and references funds like Local Fund and Municipal Fund without a detailed definition.
   • Insertion of Explanation: An Explanation will be added under clause (c) of Section 2(69) to define the terms Local Fund and Municipal Fund explicitly.

3. 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.

B. Omission of Certain Provisions from the CGST Act, 2017 and CGST Rules, 2017 relating to Vouchers:

To Omit Sections 12(4) and 13(4) of the CGST Act, 2017,

Current Scenario:

C. Amendment in Section 17(5) to replace phrase “plant or machinery” with “plant and machinery”, retrospectively, with effect from 1 July 2017:

• To replace the phrase “plant or machinery” with “plant and machinery” used in Section 17(5) of the CGST Act, 2017.
• Insertion of Explanation:
  • To clarify that “plant or machinery” should always be understood as “plant and machinery”, even if there’s a previous judgment, decree, or order that might suggest otherwise.
  • The clarification applies retroactively, meaning it overrides earlier interpretations made by courts, tribunals, or other authorities.
  • The phrase “notwithstanding anything to the contrary” ensures that this clarification takes priority over any conflicting decisions or legal precedents.

D. 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.

E. Amendment in Proviso to Section 34(2) relating to the output tax liability of a supplier when issuing a credit note

• Section 34(2) of the CGST Act allows a supplier to reduce their output tax liability when a credit note is issued.

Amendment in the Proviso: New Conditions for Reduction in Output Tax Liability

Reduction will not be allowed if:

1. Input Tax Credit (ITC) is not reversed by the recipient:
   • If the recipient (buyer) has already claimed ITC on the original invoice and hasn’t reversed that ITC after receiving the credit note, the supplier cannot reduce their output tax liability.
2. Incidence of tax has been passed on to another party (in other cases):
   • If the tax burden has already been shifted to a third party (e.g., a consumer), the supplier cannot claim a reduction in their tax liability.

(Additional sections continue with structured amendments, including Sections 38, 39, 107(6), 112, 122B, 148A, and Schedule III amendments, as provided in the original document.)

Amendment in Section 20 – Distribution of Credit by ISD

• Explicitly includes interstate RCM transactions.
• Amendments to be effective from April 1, 2025.

F. Amendment in Section 38 – Furnishing Details of Inward Supplies

• The government will introduce new conditions and restrictions on how inward supply details are furnished.

G. Amendment in Section 39 – Return Filing Conditions and Restrictions

• The government can now impose additional conditions on filing returns without amending the GST Act.

H. Amendment in Section 107(6) – Pre-deposit for Appeals in Penalty-Only Cases

• Pre-deposit for penalty-only appeals reduced from 25% to 10% of the penalty amount.

I. Amendment in Section 112 – Pre-deposit for Tribunal Appeals

• Pre-deposit for penalty-only cases before the Tribunal fixed at 10%.

J. New Section 122B – Penalty for Non-compliance with Track and Trace Mechanism

• Penalty:
  • ₹1,00,000 or
  • 10% of the tax payable on such goods (whichever is higher).
• Additional to other penalties under Chapter XV.

K. New Section 148A – Track and Trace Mechanism for Certain Goods

• Government empowered to implement tracking for evasion-prone commodities.
• Unique marks to be affixed to trace goods across the supply chain.

L. Amendment in Schedule III – Warehoused Goods

• New Clause (aa) in Paragraph 8 (Effective July 1, 2017)
• Transactions involving goods warehoused in SEZ or FTWZ before clearance will not be considered supply under GST.
• Types of Warehoused Goods Transactions:
  1. Clearance from Bonded Warehouses to vessels.
  2. Clearance from Non-Bonded Warehouses to vessels.

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