Important GST Changes - Clause wise analysis of Union Budget 2025-26 || CA (Adv) Bimal Jain

Summary

The video outlines key changes in GST as part of the Union Budget 2025, focusing on amendments in the Finance Bill. Notable changes include adjustments to input service distributors (ISD), the introduction of a unique identification marking system for certain goods, clarification on the taxation of vouchers, and modifications to plant and machinery provisions. Additionally, the speaker addresses updates to credit note regulations, mandatory invoice management systems (IMS), new appeal filing procedures, and penalties for non-compliance. The speaker also touches on income tax changes, particularly those benefiting the middle class, with an increase in the tax-free income threshold.

Takeaways

• 😀 Section 116 introduces an amendment in the CGST Act, allowing Input Service Distributors (ISD) to pay GST under reverse charge for interstate supply of common input services, effective from 1st April 2025.
• 😀 The new Section 2(116a) defines 'unique identification marking' for specified goods, implementing a track and trace mechanism for certain goods like tobacco, scrap, and plastic, to prevent tax evasion.
• 😀 The time of supply for vouchers has been clarified in Sections 12 and 13. Vouchers themselves are not subject to GST, but the underlying goods/services are taxable when supplied.
• 😀 Section 17(5) Clause D now retroactively removes the provision for claiming input tax credit on construction of malls and similar buildings, as per the Safari Retreats judgment.
• 😀 The Input Service Distributor (ISD) can now pay reverse charge for interstate supply of services and distribute credits among distinct persons under the same PAN.
• 😀 Section 34(2) outlines that a supplier can only adjust their tax liability on a credit note if the recipient reverses the credit associated with it, as per the invoice management system (IMS).
• 😀 Section 39 adds provisions that will not allow GST returns (GSTR-3B) to be filed unless previous tax dues are cleared, creating stricter compliance.
• 😀 Section 107 introduces a significant change, mandating a 10% predeposit on penalty orders under Section 122, affecting appeal processes, particularly for penalty orders related to GST violations.
• 😀 Section 148A introduces the 'track and trace' mechanism for specific goods, including tobacco and other sin goods, to ensure proper tracking of goods for tax purposes, with penalties for non-compliance.
• 😀 Schedule 3 now explicitly states that supplies of goods within Special Economic Zones (SEZs) are neither taxable goods nor services, with retrospective effect from July 1, 2017, unless taxes were wrongly paid earlier.

Q & A

What are the key amendments in the GST provisions introduced by the Union Budget 2025?

The key amendments include changes to the definition of Input Service Distributor (ISD), the introduction of a track and trace mechanism for specified goods, changes to time of supply for vouchers, and retrospective amendments to credit rules on plant and machinery. The budget also introduces provisions regarding the mandatory use of the Invoice Management System (IMS), updates to penalty provisions, and changes to schedule 3 of GST regarding supply within special economic zones (SEZ).

What changes were made regarding the Input Service Distributor (ISD) in the Union Budget 2025?

The budget introduces an amendment to Section 2, Subsection 61 of the CGST Act, allowing ISDs to pay GST under reverse charge for interstate supply of common input services. The credit for these services can then be distributed among distinct persons under the same PAN number. This provision, effective from April 1, 2025, broadens the scope of ISD’s role in distributing GST credits.

How does the track and trace mechanism work according to the Union Budget 2025?

The budget defines the 'track and trace' mechanism as a system using unique identification markings for specified goods. This mechanism will be applied to goods like tobacco, pan masala, scrap, and plastics, among others. It allows authorities to track the movement of these goods using computer-readable software like barcodes or RFID tags. Failure to comply with this mechanism will result in penalties.

What is the penalty for not following the track and trace mechanism?

If a person fails to follow the track and trace mechanism, they will face a penalty of either ₹1 lakh or 10% of the tax payable on the goods in question, whichever is higher. This penalty is in addition to any other penalties under the CGST Act.

How does the Union Budget 2025 treat vouchers for GST purposes?

The budget clarifies that vouchers themselves are not considered a supply of goods or services. However, if the voucher is used to obtain underlying goods or services, the supply of those goods or services will be taxable. The time of supply for such transactions will be based on the supply of the underlying goods or services, not the voucher itself.

What retrospective amendments were made to the credit rules regarding plant and machinery?

The Union Budget 2025 removes the benefit of input tax credit on plant and machinery as previously outlined in the 'Safari Retreats' case. This change is applicable retroactively from July 1, 2017. The ruling clarifies that credit on construction-related items like malls will no longer be allowed, which could affect taxpayers who previously claimed credit for such purchases.

What changes have been made to the provisions related to the filing of GST returns?

The budget introduces mandatory filing of GST returns through the Invoice Management System (IMS). Additionally, it imposes conditions and restrictions for filing GST returns, such as the requirement to file GST 1 before GST 3B. It also introduces a time limit of 3 years for the belated filing of GST 1, effective from October 1, 2023.

What impact does the budget have on penalty orders under GST?

The Union Budget 2025 introduces a significant change to the appeal process for penalty orders. For appeals related to penalty orders under Section 122 and Section 129 of the CGST Act, taxpayers will now need to make a pre-deposit of 10% of the penalty amount, which was previously set at 25% for Section 129 penalty orders. This change applies to a broader range of penalty orders, making it more stringent for taxpayers seeking to appeal.

What provisions were made for goods warehoused in SEZ according to the Union Budget 2025?

The budget inserts a new provision under Schedule 3 of the CGST Act, which states that goods warehoused in Special Economic Zones (SEZ) for export or domestic tariff area (DTA) transfer will not be considered a supply of goods or services, and therefore no GST is applicable. This provision, effective from July 1, 2017, aims to resolve ongoing litigation and clarify the treatment of goods within SEZs.

What is the rationale behind the income tax changes introduced in the Union Budget 2025?

The Union Budget 2025 increases the income tax exemption limit for salaried individuals from ₹7 lakh to ₹12 lakh under the new tax regime. This change is designed to boost consumption by increasing disposable income among middle-class taxpayers, with the goal of stimulating economic growth and addressing inflation. Additionally, rationalization of tax slabs is expected to further ease the tax burden on individuals.