KEY FEATURES OF UNION BUDGET 2025

KEY FEATURES OF UNION BUDGET 2025

Amendments in Section 17 of the CGST Act, 2017 [W.E.F. 1^st July 2017]

Introduction of IMS with GSTR2B

GSTR2B will be generated after the action is taken by the taxpayer instead of auto-populated data earlier. Filing of GSTR-3B will be allowed subject to conditions and restrictions.

Amendments in Schedule III of the CGST Act,2017

• •  
• • 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.
• • To provide that no refund of tax already paid will be available for the transactions referred above.

Specific Requirement of ITC Reversal for Credit Note

Explicitly provided for ITC reversal on credit note by the recipient for the reduction in Tax Liability of the supplier. There would be a discussion that would be required with the Customer when Credit Note is issued.

Retrospective Exemption in Certain Cases in Service Tax

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 being exempted from service tax for the period commencing from 1st April, 2011 and ending with 30th June, 2017.

Insertion of New Section in the CGST Act, 2017:

Section 122B:

With inserting a new section 122B in the Central Goods and Services Tax Act to provide for penal provisions for contraventions of the provision relating to track and trace mechanism.

Section 148A:

With Inserting of Sec 148A to provide for an enabling provision for implementation of track and trace mechanism for ensuring effective monitoring and control of supply of specified commodities.

Other Changes

• • • Explicit requirement for distribution of Inter-State RCM ITC by ISD w.e.f. 1^st April 2025.
    • Mandatory pre-deposit of penalty amount for cases involving only demand for penalty at AA and AT (10% each).

3. Key Changes for Micro, Small, and Medium Enterprises (MSME)

Change in Classification for MSME

Turnover Criteria: Doubled

Investment Criteria: Made 2.5 times

To improve access to credit, the credit guarantee cover will be enhanced:

• ·  For Micro and Small Enterprises, from INR 5 crore to 10 crores, leading to an additional credit of INR 1.5 lakh crore in the next 5 years;
• ·  For Startups, from INR 10 crore to 20 crores, with the guarantee fee being moderated to 1% for loans in 27 focus sectors important for Atmanirbhar Bharat; and
• · For well-run exporter MSMEs, for term loans up to INR 20 crore.

             Credit Cards for Micro Enterprises:

• · Customized Credit Cards with an Rs. 5 lakh limit for micro-enterprises will be introduced and registered on the Udyam portal. In the first year, 10 lakh such cards will be issued.

4. Changes that will affect the Non-Resident Indians

i. Clarification on gains for FIIs now classified as capital gains and not business income

The government has proposed an increase in the tax rate on long-term capital gains for non-residents, bringing it to 12.5% from the existing 10%. This change, aimed at aligning tax rates for foreign investors with those applicable to residents will take effect from April 1, 2026, and apply from the assessment year 2026-27 onward.

Currently, under Section 115AD of the Income-tax Act, Foreign Institutional Investors (FIIs) and specified funds are taxed at: 10% on long-term capital gains from the transfer of securities (excluding certain units covered under Section 115AB).

ii. Greater scrutiny of foreign-earned income

Indian authorities will now have enhanced data-sharing agreements with multiple jurisdictions, especially with countries that are part of India's Double Tax Avoidance Agreements (DTAA). This means Indian students who take up jobs abroad may need to declare their foreign earnings in India, even if they have no active income sources in the country.

iii. xpanded residency definition for taxation

Previously, NRIs were taxed on their Indian-sourced income only if they spent over 182 days in India within a financial year. However, earlier reforms in Budget 2020 reduced this to 120 days for high-income individuals. Budget 2025 hints at further tightening, making it more difficult for students and professionals to maintain NRI status if they have substantial financial ties to India.

iv. Potential impact on tax treaty benefits

While India maintains DTAA treaties with countries like the US, UK, Canada, and Australia, the government has indicated its intent to rework these agreements to close loopholes exploited for tax avoidance. This could mean increased withholding tax rates on foreign remittances or stricter documentation requirements for those claiming tax relief under DTAA.