Key Amendments in GST Provisions Proposed in the Finance Bill 2025
The Finance Bill 2025 brings 11 key changes to the Goods and Services Tax (GST) system. These changes aim to rectify existing anomalies, streamline compliance, and enhance tracking mechanisms. Starting in April 2025, the amendments address many areas.
These include:
- Input tax credit (ITC) distribution
- Clarifications of definitions
- Track-and-trace mechanisms
- Retroactive disallowances of ITCs
As the best tax consulting company in Delhi, we break down these crucial changes below.
ITC Distribution by Input Service Distributors (ISD)
" The Finance Bill 2025 allows ISD to distribute ITC for inter-state supplies. This applies when a business needs to pay tax under the reverse charge mechanism (RCM). "
- As per Clause 116 and 120, this correction ensures that IGST under Section 5(3) and 5(4) of the IGST Act, 2017 is also covered.
- This amendment rectifies previous limitations and ensures compliance and efficiency.
Clarification on the Definition of Local Authority
- Clause 116 of the Finance Bill 2025 broadens the local authority definition. It now includes the Municipal Fund and the Local Fund. This means that municipal and panchayat-managed funds are part of it.
- This clarification strengthens governance and compliance in taxation.
Implementation of Track and Trace Mechanism
" A new tracking system will start for certain goods. This is aimed at ensuring transparency and stopping tax evasion. "
- The Finance Bill sets up a unique ID marking system for goods (clauses 126, 127).
- Non-compliance could result in penalties of up to Rs. 1 lakh or 10% of the tax payable.
Removal of Special Time-of-Supply Clauses for Vouchers
- The amendment (Clauses 117, 118) removes special rules for vouchers. Now, its tax treatment matches that of the goods and services they represent.
- This change enhances consistency in tax treatment.
Retrospective ITC Disallowance for Plant or Machinery Construction
" Starting July 1, 2017, the retrospective amendment stops ITC on goods and services for plant or machinery construction. "
- This amendment nullifies the Supreme Court’s ruling in the Safari Retreats case.
- Potential legal scrutiny may arise due to the retrospective nature of this change.
Tax Liability Reduction Only on Recipient ITC Reversal
- Clause 121 mandates ITC reversal by the recipient before the supplier can claim a tax liability reduction.
- This aligns with the Integrated Management Systems (IMS) initiative.
Amendments in GSTR-2B Under IMS Initiative
- The Finance Bill drops "auto-generated" for GSTR-2B statements. This lets taxpayers regenerate and recompute ITC statements under the IMS framework.
- This change improves tax reporting flexibility.
Restrictions for Filing GSTR-3B Returns
- Clause 123 enables restrictions for return filing.
- Ensures compliance with tax regulations before submitting returns.
Mandatory 10% Pre-Deposit for Penalty Appeals
" Taxpayers appealing penalty-only cases must now make an upfront deposit of 10% of the penalty amount. "
- Clauses 124 and 125 create a mandatory requirement for both the appellate authority and the tribunal.
- Aiming to deter frivolous appeals.
SEZ and FTZWZ Goods Not Classified as Supply
- Clause 128, 129 retrospectively clarifies that goods warehoused in Special Economic Zones (SEZs) and Free Trade Warehousing Zones (FTZWZs) before export or DTA clearance are neither a supply of goods nor services.
- This aims to streamline international trade compliance.
Conclusion
The Finance Bill 2025 introduces major changes to GST rules. These changes will affect businesses in many sectors.
The key changes include:
- Improved tracking methods
- Clearer roles for local authorities
- ITC disallowances for earlier periods
We are the top tax consultation firm in Delhi. We help businesses manage changes with efficiency. Need help with GST compliance, ISO Certification Services, or ISO Certification Verification? Contact us today!
