Summary of The Finance Bill 2025 and Amendments to the CGST Act in India

The Finance Bill 2025, presented on February 1, introduces several significant changes to the Goods & Services Tax (GST) framework, aimed at simplifying tax compliance, enhancing regulatory oversight, and refining tax treatment for specific transactions.

1. Input Tax Credit (ITC) Distribution by Input Service Distributors

The Bill brings in provisions that allow input service distributors to distribute ITC on inter-state supplies, where tax is payable on a reverse charge basis. This amendment provides greater clarity on ITC distribution, helping businesses manage their tax liabilities with increased efficiency.

2. Track and Trace Mechanism for Specified Goods

A new track-and-trace mechanism has been introduced for certain goods or categories of persons. This mechanism includes unique identification markings and imposes penalties for non-compliance. It aims to prevent tax evasion and ensure the proper tracking of goods such as pharmaceuticals and alcohol.

3. Deposit Requirement for Appeals in Certain Cases

The Bill introduces a requirement for a 10% deposit of the penalty amount in cases where a penalty is imposed without any demand for tax. This ensures that appeals are filed with a financial commitment, thereby discouraging frivolous litigation.

4. Tax Treatment of Warehoused Goods in Special Zones

A retrospective amendment to Schedule III of the CGST Act, effective from July 1, 2017, clarifies that the supply of goods stored in Special Economic Zones or Free Trade Warehousing Zones, before clearance for export or movement to the Domestic Tariff Area, will not be treated as a supply. This eliminates ambiguities surrounding the tax treatment of such transactions.

Supplementary Amendments to the CGST Act

5. Omission of Sections 12(4) and 13(4) – Time of Supply for Vouchers

The Finance Bill removes Sections 12(4) and 13(4), which previously governed the time of supply for vouchers. With this change, the sale or distribution of vouchers in a peer-to-peer model will no longer be subject to GST, simplifying the taxation of digital and prepaid vouchers.

6. Introduction of Section 122B – Penalties for Non-Compliance with Track and Trace Regulations

A new penalty provision, Section 122B, has been introduced for businesses failing to comply with the track-and-trace regulations. The penalty can be INR 1 lakh or 10% of the tax payable, whichever is higher. This strengthens enforcement and ensures businesses adhere to the new tracking system.

There’s more you should know about e-invoicing in India – learn more about the new and upcoming regulations.