Budget impact from GST perspective
BENGALURU: Goods and Services Tax (GST) is crucial for revenue collection, compliance, and economic growth. The Finance Bill (FB) 2025 introduces policy changes and simplifications to enhance efficiency. This article examines the proposed amendments and their impact.
Vouchers Not Considered as Supply of Goods or Services: Vouchers can either be Prepaid Payment Instruments (PPI) or non-PPI. Prepaid vouchers are treated as equivalent to money and are excluded from the definition of goods and services. Non-PPI vouchers fall under actionable claims and are not subject to GST, as upheld by the Hon’ble Madras HC in Kalyan Jewellers. Additionally, the Hon’ble Karnataka HC in Premier Sales Promotion Pvt. Ltd. ruled that vouchers have no intrinsic value. The FB simplifies compliance by deleting time of supply rules for gift vouchers/gift cards issued for promotional purposes, though the goods or services redeemed through them remain taxable under GST.
ITC Restriction: The FB restricts Input Tax Credit (ITC) on inputs used for constructing buildings, malls and other immovable properties, even if they are later leased or rented out, overriding the Hon’ble Supreme Court’s ruling in Safari Retreats. The amendment clarifies that ITC remains ineligible, regardless of the property’s use for taxable supplies. Additionally, to remove ambiguity, “plant or machinery” in Section 17(5)(d) has been changed to “plant and machinery”, aligning it with Section 17(5)(c)for consistency. This change ensures clarity in ITC restrictions and resolves legal interpretation issues.
Mandatory ISD Registration and Inclusion of Inter-State RCM Transactions for ITC Distribution: Effective April 1, 2025, it is mandatory for a common office receiving ITC on behalf of distinct persons to obtain Input Service Distributor (ISD) registration. Additionally, inter-state Reverse Charge Mechanism (RCM) transactions are now included for ISD purposes, allowing ITC from such transactions to be distributed accordingly.
Output Tax Reduction Linked to ITC Reversal: The FB, by inserting proviso to Section 34(2) of the GST Act, mandates that a recipient must reverse the ITC on a credit note issued by the supplier to claim reduction of output tax. This ensures proper tax adjustments and prevents undue ITC benefits.
Real-Time ITC Verification for Recipients: With the introduction of Invoice Management System (IMS) on the portal, recipients can now verify transactions in advance before GSTR-2B is generated on the 14th of the following month, ensuring accurate ITC claims.
Reduced Pre-Deposit for First Appellate Authority (FAA) Appeals & Mandatory Pre-Deposit for Tribunal Appeals on Penalty Orders U/s 129: The FB lowers pre-deposit requirement for appeal against penalties U/s 129 (related to goods in transit) from 25% to 10%. Additionally, a 10% pre-deposit is now required for appeals before the Tribunal.
No GST on Warehoused Goods in SEZ/FTWZ: Classifies goods warehoused in SEZ or FTWZ as being outside India’s Customs frontiers, making them non-taxable under GST until cleared for export or domestic supply.