Introduction
- In this update we have highlighted the key changes made to the indirect tax regime in the Union Budget presented by the Hon'ble Finance Minister on February 1, 2025. Various new proposals have been tabled. Apart from amending the current provisions of indirect tax laws, certain new provisions have also been introduced.
- We hope that this update will prove to be handy for understanding the key implications to the indirect tax regime pursuant to the Budget. We will be happy to hear your feedback on this update and help you with any further information that you may require.
CGST – Key Changes
- Section 2(61) of the Central Goods and Services Tax Act, 2017 ("the CGST Act")* is 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 under reverse charge basis (effective April 1, 2025).
- Section 2(69) is being amended by inserting an Explanation providing the meaning of the terms 'Local Fund' and 'Municipal Fund' used in the definition of "local authority", so as to clarify the scope of the said terms.
- Section 2(116A) is being inserted to provide definition of Unique Identification Marking for implementation of Track and Trace Mechanism.
- Section 12(4) and Section 13(4) relating to time of supply of vouchers is being deleted.
- Section 17(5)(d) is being amended to substitute the words "plant or machinery" with the words "plant and machinery" with effect from July 1, 2017.
- 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 under reverse charge basis (effective April 1, 2025).
- The proviso to Section 34(2) is being amended to provide the requirement for 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.
- Section 39(1) is being amended to provide an enabling clause to prescribe certain conditions and restriction for filing of return.
- 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.
- 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 enabling mechanism for a Track and Trace Mechanism for ensuring effective monitoring and control of supply of specified commodities.
- Schedule III is being amended (with effect from July 1, 2017)
as under:
- Insertion of a new clause (aa) in paragraph 8 to specify 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.
- It further seeks to amend the Explanation 2 of the said Schedule to clarify that the said Explanation shall be applicable in respect of clause (a) of paragraph 8 of the said Schedule.
- It also seeks to insert an Explanation 3 in the said Schedule to define the expressions "Special Economic Zone", "Free Trade Warehousing Zone" and "Domestic Tariff Area", for the purpose of the proposed clause (aa) in paragraph 8 of said Schedule.
- It is also clarified that no refund of tax already paid in respect of the aforesaid activities or transactions, shall be available.
Service Tax – Key Changes
- Services provided or agreed to be provided by insurance companies by way of reinsurance services under the Weather Based Crop Insurance Scheme (WBCIS) and the Modified National Agricultural Insurance Scheme (MNAIS) are proposed to be exempted from service tax retrospectively for the period commencing from April 1, 2011 and ending with June 30, 2017.
- Refund of service tax shall be made on the aforesaid activity, if service tax collected earlier.
- An application for the refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2025 receives the assent of the President.
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