Amendments in GST by Finance Bill 2025: Budget 2025

The Finance Bill 2025, presented as part of the Union Budget 2025, includes several key amendments to the Goods and Services Tax (GST) framework. These amendments aim to streamline GST compliance, enhance clarity on key provisions, and ensure more effective implementation of the tax structure under the GST regime.

The Union Budget 2025-26, presented by Union Finance Minister Smt. Nirmala Sitharaman on February 1, 2025, introduced several crucial amendments to the Goods and Services Tax (GST) law. Many of these changes were previously recommended during the 55th GST Council Meeting held on December 21, 2024.

These amendments focus on improving tax administration, increasing compliance, and minimizing tax evasion. Below is a detailed analysis of the key changes proposed in the GST framework.

Amendments in GST by Finance Bill 2025

Amendment to Clause (61) of Section 2 of the Central Goods and Services Tax Act

• Amendment to Clause (61) of section 2 of the Central Goods and Services Tax Act.
• Provides for distribution of input tax credit by the Input Service Distributor for inter-state supplies.
• Applies to supplies on which tax is paid on a reverse charge basis.
• Inserts reference to sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act.
• The amendment will be effective from 1st April 2025.

The amendment to Section 2(61) clarifies that inter-state Reverse Charge Mechanism (RCM) transactions will now be included under Input Service Distributor (ISD). This change ensures that ISD explicitly covers supplies subject to tax under Sections 5(3) and 5(4) of the IGST Act, 2017, thereby broadening the scope of tax credit distribution.

This amendment shall take effect from 1st day of April, 2025.

Section 5(3) of the IGST Act allows the government, based on the Council’s recommendations, to specify certain goods or services for which the recipient, instead of the supplier, must pay tax under the reverse charge mechanism. The recipient is treated as the person liable for tax compliance under the Act.

Section 5(4) of the IGST Act empowers the government, based on the Council’s recommendations, to specify certain registered persons who must pay tax under the reverse charge mechanism when receiving specified goods or services from unregistered suppliers. The recipient is treated as the person liable for tax compliance under the Act.

Amendment to Sub-clause (c) of Clause (69) of Section 2

• Sub-clause (c) of clause (69) of section 2 is being amended.
• “Municipal or local fund” is replaced with “municipal fund or local fund.”
• An Explanation is inserted after the sub-clause.
• The Explanation defines the terms ‘Local Fund’ and ‘Municipal Fund’ as used in the definition of “local authority.”
• The amendment aims to clarify the scope of these terms.

The definition of “local authority” has been expanded by adding an explanation under Clause (c) of Section 2(69). This explanation explicitly defines Local Fund and Municipal Fund:

• Local Fund: A “local fund” refers to a fund managed by a local self-government authority for civic functions in a Panchayat area, with legal power to levy, collect, and use taxes, duties, tolls, cesses, or fees.
• Municipal Fund: A “municipal fund” is a fund managed by a local self-government authority for civic functions in a Metropolitan or Municipal area, with legal power to levy, collect, and use taxes, duties, tolls, cesses, or fees.

Insertion of New Clause (116A) in Section 2 for Unique Identification Marking

• A new clause (116A) is being inserted in section 2.
• The clause provides a definition for Unique Identification Marking.
• This is for the implementation of the Track and Trace Mechanism.

A new definition has been introduced under Section 2(116A) to clarify the concept of unique identification marking. The amendment defines “unique identification marking” as:

• The unique identification marking referred to in clause (b) of sub-section (2) of section 148A.
• Includes a digital stamp, digital mark, or any other similar marking, which is unique, secure, and non-removable.

This provision enables the government to enforce the Track and Trace Mechanism for specified evasion-prone commodities.

Deletion of Sub-sections Related to Time of Supply for Vouchers

• Sub-section (4) of Section 12, relating to time of supply for Vouchers, is being deleted.
• Sub-section (4) of Section 13, relating to time of supply for Vouchers, is being deleted.

The Budget has also proposed the omission of Sections 12(4) and 13(4) of the CGST Act, 2017. These sections dealt with time of supply provisions for services in case of associated enterprises, where the supplier of service is located outside India. The removal of these provisions aims to simplify compliance requirements and align the GST law with international tax practices.

Amendment to Clause (d) of Sub-section (5) of Section 17

• Clause (d) of sub-section (5) of section 17 is being amended.
• The words “plant or machinery” are being substituted with “plant and machinery.”
• The amendment will be effective retrospectively from 1st July 2017.
• The amendment overrides any contrary judgment, decree, or order by any court or authority.

Clause (d) of sub-section (5) of Section 17 is being amended to substitute the words “plant or machinery” with “plant and machinery”. This amendment will be effective retrospectively from July 1, 2017, notwithstanding anything to the contrary contained in any judgment, decree, or order of any court or any other authority.

Amendment to Section 20 of the CGST Act

• Section 20(1) and Section 20(2) are being amended.
• The amendments provide for the distribution of input tax credit by the Input Service Distributor for inter-state supplies.
• Applies to supplies on which tax is paid on reverse charge basis.
• Reference to sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act is being inserted in Section 20.
• The amendment will be effective from 1st April 2025.

With effect from April 1, 2025, Section 20 of the CGST Act is amended as follows:

1. In Sub-section (1):
   • A reference to tax liability under Section 5(3) and 5(4) of the IGST Act, 2017 is added, making it clear that provisions related to tax distribution among states/UTs will also apply to reverse charge supplies under these IGST provisions.
2. In Sub-section (2):
   • A similar insertion is made to include tax liability under Section 5(3) and 5(4) of the IGST Act, 2017, ensuring that input tax credit distribution rules also cover these reverse charge supplies.

These amendments align the CGST Act with the reverse charge mechanism (RCM) provisions of the IGST Act.

Amendment to Proviso of Sub-section (2) of Section 34

• Proviso to sub-section (2) of section 34 is being amended.
• The amendment explicitly provides for the reversal of corresponding input tax credit.
• This applies if the registered recipient availed input tax credit for the purpose of reducing the tax liability of the supplier in respect of a credit note.

A proviso has been added to Section 34(2) of the CGST Act, stating that a supplier cannot reduce their output tax liability through a credit note if:

1. For Registered Recipients: The recipient has availed input tax credit (ITC) on the supply but has not reversed the ITC related to the credit note.
2. For Other Cases: The tax burden on the supply has been passed on to another person.

This ensures that tax adjustments do not result in undue benefits or double deductions.

Amendment to Section 38 of the CGST Act

• Section 38(1) is being amended.
• The expression “auto generated” is being omitted with respect to the statement of input tax credit in the subsection.
• Section 38(2) is being amended.
• The expression “auto generated” is being omitted with respect to the statement of input tax credit.
• The word “including” is being inserted after “by the recipient” in clause (b) of the subsection.
• The amendment aims to make clause (b) more inclusive.
• A new clause (c) is being inserted in the subsection.
• The new clause provides for an enabling provision to prescribe additional details to be included in the statement of input tax credit.

The following changes have been made to Section 38 of the CGST Act:

1. Sub-section (1):
   • The term “auto-generated statement” is replaced with “a statement”, making the wording more general.
2. Sub-section (2):
   • Terminology Update: “Auto-generated statement” is replaced with “statement referred in.”
   • Clause (a): The word “and” is removed for better readability.
   • Clause (b): The word “including” is added after “by the recipient,” to expand its scope.
   • New Clause (c): Introduces “such other details as may be prescribed”, allowing flexibility for additional prescribed information.

These changes refine the language and provide room for future modifications in the statement format.

Amendment to Section 39 CGST Act

• Section 39(1) is being amended.
• The amendment provides for an enabling clause.
• The clause will prescribe conditions and restrictions for filing returns under the subsection.

In Section 39(1) of the CGST Act, the phrase “and within such time” is replaced with “within such time, and subject to such conditions and restrictions”.

This amendment introduces the possibility of additional conditions and restrictions for filing GST returns, ensuring greater regulatory control over compliance requirements.

Amendment to Section 107(6) of CGST Act

• Section 107(6) is being amended.
• The amendment provides for a 10% mandatory pre-deposit of the penalty amount.
• This applies to appeals before the Appellate Authority in cases involving only a penalty demand, without any tax demand.

The proviso in Section 107(6) of the Central Goods and Services Act has been amended. With this amendment, if an order imposes a penalty without any tax demand, the appellant must first pay 10% of the penalty amount before filing an appeal.

This ensures that only serious appeals are filed, reducing the burden on appellate authorities. In other words, this change ensures that appeals against penalty orders follow a structured process, preventing misuse while maintaining a fair mechanism for genuine grievances.

Amendment to Section 112(8) of CGST Act

• Section 112(8) is being amended.
• The amendment mandates a 10% pre-deposit of the penalty amount.
• This applies to appeals before the Appellate Tribunal in cases involving only a penalty demand, with no tax demand.

Section 112(8) of the Central Goods and Services Act (CGST Act) deals with the conditions for filing an appeal before the Appellate Tribunal.

The proviso to this section introduces a new requirement:

If an order imposes a penalty without any associated tax demand, an appellant must pay:

• 10% of the penalty amount as per Section 107(6) (precondition for the first appeal before the Appellate Authority).
• An additional 10% of the penalty amount before filing an appeal to the Appellate Tribunal under Section 112(8).

Insertion of New Section 122B for Penalty under Track and Trace Mechanism

• A new Section 122B is being inserted.
• The section provides for penalties for contraventions of provisions related to the Track and Trace Mechanism.
• The Track and Trace Mechanism is provided under Section 148A.

Penalty for failure to comply with track and trace mechanism: Section 122B is a newly introduced provision in the Central Goods and Services Act (CGST Act)that imposes additional penalties on specific individuals who violate the provisions of Section 148A(1)(b).

Any person referred to in Section 148A(1)(b) (which likely defines certain categories of persons dealing with goods under special procedures). If such a person acts in contravention of Section 148A, they will be subject to a penalty.

The penalty structure includes:

• A minimum penalty of INR 1,00,000.
• 10% of the tax payable on the concerned goods, whichever is higher.
• This penalty is in addition to any other penalties specified under Chapter XV of the CGST Act.

This section strengthens compliance by imposing financial consequences on those violating Section 148A. Since the penalty is either ₹1 lakh or 10% of the tax payable (whichever is higher), businesses dealing with large tax amounts could face significant penalties.

Insertion of New Section 148A for Track and Trace Mechanism

• A new Section 148A is being inserted.
• The section provides for an enabling mechanism for the Track and Trace Mechanism.
• The mechanism applies to specified commodities.

A new Section 148A has been inserted into the CGST Act, 2017, empowering the government to implement a Track and Trace Mechanism for monitoring specific evasion-prone commodities.

Objectives of the Track and Trace Mechanism:

• To curb tax evasion and prevent fraudulent activities.
• To implement a unique identification mark on goods or packages to enable monitoring across the supply chain.
• To improve tax compliance by tracking goods from production to final sale.

The Government, based on the Council’s recommendations, may notify specific goods and persons or classes of persons dealing with such goods to which this section will apply. To enhance tracking and compliance, the Government can establish a system for affixing unique identification markings on specified goods and enable electronic storage and access of related information.

The notified persons must affix unique identification markings, maintain and furnish necessary records, provide details of manufacturing machinery, and pay prescribed amounts related to the identification system. This provision aims to improve transparency and regulation in handling specified goods.

Amendment to Schedule III of the CGST Act

• Schedule III of the Central Goods and Services Tax Act is being amended, effective from 1st July 2017.
• A new clause (aa) is being inserted in paragraph 8 of Schedule III.
• The amendment provides that the supply of goods warehoused in a Special Economic Zone (SEZ) or a Free Trade Warehousing Zone (FTWZ) to any person before clearance for exports or to the Domestic Tariff Area (DTA) shall be treated neither as supply of goods nor as supply of services.

Amendment to Explanation 2 of Schedule III of the Central Goods and Services Tax Act

• Explanation 2 of Schedule III of the Central Goods and Services Tax Act is being amended, effective from 1st July 2017.
• The amendment clarifies that the said explanation will apply in respect of clause (a) of paragraph 8 of the Schedule.

Amendment to Schedule III of the Central Goods and Services Tax Act: Insertion of Explanation 3

• Schedule III of the CGST Act is being amended, effective from 1st July 2017.
• Explanation 3 is being inserted to define the terms:
  • ‘Special Economic Zone’ (SEZ)
  • ‘Free Trade Warehousing Zone’ (FTWZ)
  • ‘Domestic Tariff Area’ (DTA)
• These definitions are for the purpose of the proposed clause (aa) in paragraph 8 of the said Schedule.

A significant amendment has been introduced to clarify that transactions involving goods stored in Special Economic Zones (SEZs) or Free Trade Warehousing Zones (FTWZs) before export or transfer to the Domestic Tariff Area (DTA) will not be considered supply under GST.

The amendment provides further classification of warehoused goods transactions:

1. Clearance from Bonded Warehouses to vessels.
2. Clearance from Non-Bonded Warehouses to vessels.

These clarifications aim to remove ambiguities in taxability concerning warehoused goods before they enter the domestic market or are exported.

No Refund of Tax for Certain Activities or Transactions

• No refund of tax already paid will be available.
• This applies to the activities or transactions referred to in clause 128.

Section 128 provides exemptions or relief in certain cases related to GST penalties or tax obligations. If tax was collected before Section 128 came into effect and it is later found that this tax would not have been collected if Section 128 had been applicable earlier, taxpayers will not be entitled to a refund of that tax.

Thant means even if it is later realized that a particular tax was collected due to the absence of Section 128 at that time (which, if present, would have prevented such collection), the government will not refund that tax.

Businesses or individuals who paid tax before Section 128 was implemented cannot claim a refund, even if they argue that the tax would not have been payable under Section 128.

Businesses must stay updated with these GST law amendments to maintain compliance and leverage new opportunities. The government’s proactive approach in refining GST laws further strengthens India’s position as a robust economic entity with a fair and transparent taxation system.