Major GST Amendments in the Finance Bill 2025

GST Amendments

Major GST Amendments in the Finance Bill 2025

GST Amendments

The Finance Bill 2025 proposes 11 significant amendments to Goods and Services Tax (GST) provisions, aiming to rectify anomalies, introduce new compliance measures, and clarify legal ambiguities. These changes, effective from April 2025, impact input tax credit (ITC) distribution, tax compliance, and procedural aspects of GST.

1. ITC Distribution for Reverse Charge Transactions

Clause 116, 120 | Effective: April 1, 2025

  • Expands the scope of Input Service Distributors (ISD) to include IGST paid on reverse charge transactions.

  • This correction addresses previous limitations in ITC distribution for inter-state supplies under Sections 5(3) and 5(4) of the IGST Act.

2. Clarification on Local Authority Definition

Clause 116 | Effective: Prospectively from enactment

  • The terms ‘Municipal Fund’ and ‘Local Fund’ are explicitly defined.

  • Covers funds managed by local government bodies in municipal and panchayat areas, reinforcing the scope of local authorities under GST.

3. Implementation of Track-and-Trace Mechanism

Clause 116, 126, 127 | Effective: Prospectively from enactment

  • A unique identification system will be introduced for specified commodities.

  • Businesses dealing with these goods must affix secure, non-removable digital marks or stamps.

  • Non-compliance could result in penalties of Rs. 1 lakh or 10% of tax payable, whichever is higher.

4. Removal of Special Time-of-Supply Rules for Vouchers

Clause 117, 118 | Effective: Prospectively from enactment

  • Aligns the taxability of vouchers with the underlying goods/services instead of treating them separately.

  • Time of supply provisions will now follow the general GST framework under Sections 12 and 13 of the CGST Act.

5. Retrospective ITC Disallowance for Construction of Plant or Machinery

Clause 119 | Effective: July 1, 2017 (Retrospective)

  • Overrides the Apex Court’s ruling in ‘Safari Retreats’ regarding ITC claims for plant and machinery.

  • ITC on construction of land and buildings is explicitly disallowed, possibly inviting legal challenges.

6. Tax Reduction for Outward Supply Contingent on ITC Reversal by Recipient

Clause 121 | Effective: Prospectively from enactment

  • Ensures that suppliers can only reduce tax liability if the recipient reverses the corresponding ITC.

  • Addresses cases where credit notes issued for post-sale discounts were being misused.

7. Changes to GSTR-2B Under IMS Initiative

Clause 122 | Effective: Prospectively from enactment

  • GSTR-2B statements will no longer be auto-generated but can be regenerated by taxpayers.

  • Adds inclusivity in ITC reporting by modifying Section 38(2).

8. Enabling Clause for GSTR-3B Filing Conditions

Clause 123 | Effective: Prospectively from enactment

  • Introduces conditions and restrictions for filing GSTR-3B returns to streamline compliance.

9. Mandatory 10% Pre-Deposit for Penalty Appeals Before Appellate Authority

Clause 124 | Effective: Prospectively from enactment

  • Imposes a 10% pre-deposit for cases involving only penalties (excluding tax amounts).

  • Previously, such pre-deposits applied only to e-way bill violations.

10. Mandatory 10% Pre-Deposit for Appeals Before Appellate Tribunal

Clause 125 | Effective: Prospectively from enactment

  • Extends the 10% pre-deposit requirement to penalty-only cases heard by the Appellate Tribunal.

11. Clarification on SEZ/FTZWZ Warehoused Goods

Clause 128, 129 | Effective: July 1, 2017 (Retrospective)

  • Clarifies that goods warehoused in Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTZWZ) before export or Domestic Tariff Area (DTA) clearance do not qualify as supplies of goods or services.

  • This aligns GST treatment with the Special Economic Zones Act 2005.

Read More: Review of TDS/TCS Amendments in Budget 2025

These amendments seek to enhance compliance, improve tracking mechanisms, and close legal loopholes in GST provisions. However, retrospective changes, especially concerning ITC disallowance, may be subject to judicial review. Businesses should assess the impact of these changes and ensure timely compliance with the new regulations.

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Review of TDS/TCS Amendments in Budget 2025

Budget 2025

Review of TDS/TCS Amendments in Budget 2025

Budget 2025

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions are integral to the tax system, ensuring tax collection at the source of income. However, the complexity of multiple sections, varying threshold limits, and diverse tax rates often leads to compliance challenges for both deductors/collectors and deductees/collectees.

The Union Budget 2025 has introduced significant amendments aimed at simplifying and rationalizing TDS/TCS provisions. These changes primarily focus on revising threshold limits and modifying tax rates to reduce compliance burdens and improve ease of doing business. Below are the key changes proposed:

1. Revision of TDS Threshold Limits

One of the major amendments includes increasing the threshold limits across various TDS provisions to alleviate the compliance burden and enhance liquidity for taxpayers. The revised section-wise threshold limits are as follows:

Budget 2025
SectionNature of IncomeExisting Threshold (Rs.)Proposed Threshold (Rs.)
193Interest on securitiesNil10,000/-
194AInterest other than securities50,000/- (Senior Citizens) 40,000/- (Others) 5,000/- (NBFC)1,00,000/- (Senior Citizens) 50,000/- (Others) 10,000/- (NBFC)
194Dividend5,000/-10,000/-
194KIncome from Mutual Funds5,000/-10,000/-
194BWinnings from lottery, crossword puzzles10,000/- (Aggregated annually)10,000/- (Single transaction)
194BBWinnings from horse races10,000/-10,000/-
194DInsurance Commission15,000/-20,000/-
194GCommission on lottery tickets15,000/-20,000/-
194HCommission/Brokerage15,000/-20,000/-
194IRent2,00,000/- (Annually)50,000/- (Monthly)
194JProfessional/Technical Fees30,000/-50,000/-
194LACompensation on land acquisition2,50,000/-5,00,000/-

 

These revisions will take effect from April 1, 2025. While the threshold increases are not significantly high except for rent (Section 194I) and interest (Section 194A for senior citizens), they are still expected to ease compliance for taxpayers. The revision in Section 194I specifically benefits commercial property rentals, with exemptions for individuals and HUFs under a certain turnover threshold.

2. Adjustment of TDS Rates

The Budget also proposes rationalizing certain TDS rates to enhance taxpayer compliance and ease of business. Notably, the changes include:

SectionNature of IncomeExisting TDS RateProposed TDS Rate
194LBCIncome from securitization trusts (Resident Investors)25% (Individual & HUF) 30% (Others)10% for all cases

This change will also take effect from April 1, 2025.

3. Amendments to TCS Provisions

a) Revisions in TCS on Forest Produce

The Budget proposes a more precise definition of “forest produce” by aligning it with the Indian Forest Act, 1927, and State Acts. Additionally, changes in TCS rates include:

SectionNature of IncomeExisting TCS RateProposed TCS Rate
206C(1)Timber (Forest Lease)2.5%2%
206C(1)Timber (Other than Forest Lease)2.5%2%
206C(1)Other Forest Produce (Non-Tendu Leaves)2.5%2%

 

b) Elimination of TCS on Certain Sales Transactions

Currently, Section 206C(1H) mandates sellers to collect TCS while Section 194Q requires buyers to deduct TDS. To reduce compliance challenges, Section 206C(1H) will be omitted from April 1, 2025. This resolves the common issue where both the buyer and seller deduct TDS/TCS on the same transaction.

4. Abolition of Higher TDS/TCS Rates for Non-Filers

Sections 206AB (TDS) and 206CCA (TCS) require higher tax rates for non-filers of income tax returns. Since verifying a deductee’s or collectee’s compliance status is cumbersome for taxpayers, these sections will be omitted from April 1, 2025.

5. Exemption from Prosecution for Delayed TCS Payments

Section 276BB currently allows for prosecution in cases of delayed TCS payments. The amendment ensures no prosecution if TCS is deposited before the due date for filing the quarterly statement under Section 206C(3). This aligns TCS provisions with similar relaxations already available for TDS.

6. Modification of TCS on Foreign Remittances Under LRS

The Budget also revises TCS applicability on remittances under the RBI’s Liberalized Remittance Scheme (LRS):

  • Education Remittances:

    • No TCS if funded by an education loan (Earlier: 0.5% TCS above Rs. 7 lakh)

    • If not funded by an education loan, the threshold increases from Rs. 7 lakh to Rs. 10 lakh, with the 5% TCS rate remaining unchanged.

  • Medical Remittances:

    • The TCS threshold has been increased from Rs. 7 lakh to Rs. 10 lakh.

Read More: Union Budget 2025: Key Tax, GST & MSME Updates Explained

The Budget 2025 proposes significant amendments to TDS/TCS provisions, aiming to reduce complexities and compliance burdens. Notable changes include higher threshold limits, rationalized tax rates, and simplified procedures for deductors and collectors. Unlike previous years, where different provisions took effect on different dates, all these changes will uniformly come into force from April 1, 2025. However, with the proposed new Income Tax Bill on the horizon, it remains to be seen how these provisions will be integrated into the new tax framework.

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Income Tax Update: ITR-U Filing Deadline Extended to 48 Months

ITR-U

Income Tax Update: ITR-U Filing Deadline Extended to 48 Months

ITR-U

The Indian government has extended the deadline for filing updated income tax returns (ITR-U) from 24 months to 48 months. This change, proposed in Budget 2025 by Finance Minister Nirmala Sitharaman, allows taxpayers more time to rectify errors, disclose omitted income, and comply with tax regulations.

Understanding ITR-U and Section 139(8A)

Introduced in 2022, the updated return facility under Section 139(8A) of the Income Tax Act, 1961, enables taxpayers to correct inaccuracies in previously filed returns or file a return if they had missed doing so. It applies in cases where income was omitted, losses or refunds were misrepresented, or the required threshold for filing a return was exceeded but no return was submitted.

With nearly 90 lakh taxpayers voluntarily updating their income and paying additional taxes since its introduction, the government has now expanded the timeframe to encourage further compliance.

Key Highlights of the Extended ITR-U Filing Timeline

  • Time Limit Extended: The window for filing an updated return has been extended from 24 months to 48 months from the end of the relevant assessment year.

  • Additional Tax Payable: Taxpayers filing an updated return must pay an additional tax, which increases over time:

    • Within 12 months: 25% of the total tax and interest due.

    • Within 24 months: 50% of the total tax and interest due.

    • Within 36 months: 60% of the total tax and interest due.

    • Within 48 months: 70% of the total tax and interest due.

  • Example: For the financial year 2023-24, the updated return can now be filed until March 31, 2029, instead of March 31, 2027.

How to File ITR-U

To file an updated return, follow these steps:

  1. Download Form ITR-U from the Income Tax Department’s website.

  2. Log in to the e-filing portal and select “Updated Return (ITR-U).”

  3. Enter the necessary details, including additional income and tax payable.

  4. Calculate and pay any applicable additional tax.

  5. Submit the form and verify the return using Aadhaar OTP, net banking, or DSC.

Restrictions on Filing ITR-U

Certain taxpayers are not eligible to file ITR-U, including those who:

  • Have already filed a revised return.

  • Intend to report a loss or zero income.

  • Seek to modify a previously claimed refund.

  • Aim to reduce their tax liability.

  • Are under investigation or assessment under Sections 132, 133A, or 132A.

  • Have no additional tax liability due to TDS or losses.

Impact on Taxpayers

Certain taxpayers are not eligible to file ITR-U, including those who:

  • Have already filed a revised return.

  • Intend to report a loss or zero income.

  • Seek to modify a previously claimed refund.

  • Aim to reduce their tax liability.

  • Are under investigation or assessment under Sections 132, 133A, or 132A.

  • Have no additional tax liability due to TDS or losses.

Read More: Union Budget 2025: Key Tax, GST & MSME Updates Explained

While this extension promotes voluntary compliance, the steep additional tax—ranging from 25% to 70%—may pose a significant financial burden. Many experts believe that a uniform 25% additional tax would have been sufficient as a deterrent while still encouraging timely compliance.

Nonetheless, this amendment provides a crucial opportunity for taxpayers to rectify past errors and adhere to tax laws without severe penalties. Staying informed about these changes and ensuring accurate tax filing will help individuals and businesses maintain compliance with evolving tax regulations.

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