Important Highlights of Indirect Taxes in Budget 2025

The Budget 2025 session of the Parliament begun on 31^st January, 2025 with the address of President of India and tabling of Economic Survey 2024-25.

This year’s Budget has been presented in the background of economic outlook tabled in the Parliament on 31^st January, 2025 in the form of Economic Survey 2024-25.

According to Economic Survey, GDP growth is forecast to be in the range of 6.3% to 6.8% for FY 2026 in the back drop of robust economic fundamentals. India will be the third largest economy in the world in next few years by 2030. Its median age of 28 years is the key driver of the growth. India’s economic prospects for FY 2026 are balanced.

This year’s Budget focuses to accelerate growth, secure inclusive development, enhance private sector investments, uplift household sentiments and enhance spending power of middle class in the country. Its underlying theme is to unlock nation’s potential for prosperity, global positioning and to march forward resolutely.

Indirect Taxes – Customs Duty

• Changes made in Customs tariff rates and HSN Codes.
• Legislative changes in Customs Act, 1962 and Customs Tariff Act, 1975
• Rationalization of Customs Tariff structure for industrial goods removing seven tariff rates; to levy not more than one cess / surcharge
• Voluntary revision of entry after clearance of goods to allow importers / exporters to revise entries.
• Relief on imports of drugs / medicines
• Measures to support domestic manufacture and value addition in minerals, textiles, electronic goods, lithium ion battery, shipping, telecom etc
• Measures for export promotion in handicrafts, leather, marine products.
• Time limit provided for provisional assessments – 2 years extendible by one year
• Time limit extended for end use of inputs – upto one year.

Other Specific Changes

Exemptions/concessional rates being extended till 31.3.2029 by making amendment in N. No. 50/2017 – Customs dated 30.06.2017 for below goods:

• Bulk drugs for manufacture of drugs or medicines
• Bulk drugs used in the manufacture of polio vaccine and Mono component insulins
• Bulk drugs used in the manufacture of life saving drugs or medicines
• Drugs, Medicines or Food for Special Medical Purposes (FSMP) used for treatment of rare disease
• 37 more drugs /medicines along with 13 new patient assistance programmes have been added to the list of medicines fully exempt from BCD subject to being supplied free to cost patients under Patience Assistance Programmes (PAP) – effective from 02.02.2025.
• Reduction in Tariff rates (w.e.f. 01.05.2025) –
  • Rate reduced from 30% to 10% on Pharmaceutical Reference Standard, Certified / other reference materials (Covered under sub-heading 3822 90)
  • Rate reduced from 30% to 20% on Sorbitol (classified under sub-heading 3824 60)

Indirect Taxes – Goods & Service Tax (GST)

Revenue collection from CGST / IGST

• Revised estimates (2024-25) Rs. 6506.46 crore
• Budget estimate (2025-26) Rs. 6870.52 crore

Legislative changes proposed in CGST Act, 2017

The following amendments have been proposed to the Central Goods and Services Tax Act, 2017 which are briefly summarized below:

(a) Amendment in Section 2 (Definition)

• Clause (61) is being amended to amend definition of input service distributor to explicitly provide for distribution of input tax credit by the Input Service Distributor in respect of inter-state supplies on which tax has to be paid on reverse charge basis, by inserting reference to Section 5(3)/5(4) of Integrated Goods and Services Tax Act. This amendment will be effective from 04.2025.
• Clause (69) (c) is being amended to insert an Explanation to provide for definitions of the terms ‘Local Fund’ and ‘Municipal Fund’ used in the definition of ‘local authority’ under the said clause so as to clarify the scope of the said terms.
• A new clause (112A) is being inserted to provide definition of Unique Identification Marking for implementation of Track and Trace Mechanism.

(b) Amendments in Section 12 and 13 (Tim of Supply)

• Section 12(4) and Section 13(4) relating to time of supply in respect of Vouchers is being omitted.
• Amendment in Section 17 (Input Tax Credit)
• Section 17(5)(d) is being amended to substitute the words “plant or machinery” with the words “plant and machinery” with effect from 07.2017.

(c) Amendment in Section 20 (Input Service Distributor)

• Section 20(1) and Section 20(2) are being amended to explicitly provide for distribution of input tax credit by the Input Service Distributor in respect of inter-state supplies, on which tax has to be paid on reverse charge basis, by inserting reference of Section 5(3)/5(4) of Integrated Goods and Services Tax Act in section 20(1).
• The amendment will be effective from 04.2025.

(e) Amendment in Section 34 (Credit Note)

• Proviso to section 34(2) is being amended to explicitly provide for requirement of reversal of corresponding input tax credit in respect of a credit-note, if availed, by the registered recipient, for the purpose of reduction of tax liability of the supplier in respect of the said credit note.

(f) Amendments in Section 38 (Returns)

• Section 38(1) is being amended to omit the expression “auto-generated”.
• Section 38(2) is being amended to omit the expression “auto-generated” and to insert the expression “including” after the words “by the recipient” in clause (b) to make the said clause more inclusive
• Section 38(2) is also being amended to insert a new clause (c) to provide an enabling clause to prescribe other details to be made available in statement of input tax credit.
• Section 39(1) is being amended to provide an enabling clause to prescribe certain conditions and restriction for filing of return.

(g) Amendments in Section 107 and 112 (Pre-deposit / Appeals)

• Section 107(6) is being amended to provide for 10% mandatory pre-deposit of penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any demand for tax.
• Section 112(8) is amended to provide for 10% mandatory pre-deposit of penalty amount for appeals before Appellate Tribunal in cases involving only demand of penalty without any demand for tax.

(h) Insertion of a new section 122B (Track & Trace Mechanism)

• A new Section 122B is being inserted to provide penalties for contraventions of provisions related to the Track and Trace Mechanism provided under Section 148A.
• Section 148A is being inserted to provide for enabling mechanism for a Track and Trace Mechanism for specified commodities.

(i) Amendments in Schedule III (Non Supply Cases)

• Schedule III is being amended to insert a new Entry (aa) in paragraph 8 to provide that the supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area shall be treated neither as supply of goods nor as supply of services. (w.e.f. 01.07.2017)
• Amendment in Explanation 2, w.e.f. 01.07.2017 to clarify that the said explanation would be applicable in respect of entry (a) of paragraph 8.
• New Explanation 3 to define the terms ‘Special Economic Zone’, ‘Free Trade Warehousing Zone’ and ‘Domestic Tariff Area’, for the purpose of the proposed entry (aa) in paragraph 8.
• To provide that no refund of tax already paid will be available for the transactions referred above.

Note: The above amendments shall be effective after enactment of the Finance Bill, 2025, unless otherwise specified.