As the Union Budget 2025 approaches, trade associations and tax professionals have voiced their expectations for significant changes to the Goods and Services Tax (GST) framework. Finance Minister Nirmala Sitharaman is set to present the budget in February, and stakeholders are advocating for reforms that address key challenges faced by businesses.
Key Proposals for GST Reforms
1. Revision of Late Fee and Interest Structure
The Commercial Tax Practitioners Association has called for a reduction in the interest rate on late GST payments, which is currently 18%.
- The association argues that this rate is excessively high compared to bank interest rates, which average 10% for fixed deposits.
- They propose reducing the interest rate to 12% and ensuring that businesses receive prior notice before their input tax credit (ITC) is blocked.
2. Provisions for Revised GST Returns
Tax professionals are pushing for the introduction of a mechanism that allows taxpayers to revise GST returns, addressing errors without incurring penalties.
3. Adjusting Input Tax Credit (ITC) Mechanism
The Madhya Pradesh Tax Law Bar Association emphasized the need to revamp the ITC adjustment process to improve cash flow for businesses.
- Current System: IGST is prioritized first, followed by CGST and SGST. This often leaves a surplus in SGST while firms still owe taxes under IGST and CGST.
- Proposed Change: Businesses should be allowed to adjust ITC in any order, enabling them to use accumulated SGST balances and reduce working capital blockages.
The association highlighted that this issue has persisted since GST's implementation in 2017, leaving many businesses with significant SGST balances while facing tax liabilities and interest payments in other categories.
4. Addressing ITC Mismatches
Another pressing issue raised by the Commercial Tax Practitioners Association is the lack of mechanisms to verify the accuracy of ITC claims.
- Currently, any mismatch in ITC is solely the recipient’s responsibility, even if the supplier is at fault.
- The association proposes introducing checks and balances to ensure that errors by suppliers do not unfairly penalize recipients.
Industry Perspective
Trade and tax professionals agree that simplifying GST compliance will significantly benefit businesses, especially small and medium enterprises (SMEs). A reduction in interest rates, flexible ITC adjustments, and provisions for revising returns will reduce the financial and operational burden on taxpayers.
What to Expect in the Union Budget 2025
With recommendations from trade bodies and tax experts gaining traction, the Union Budget 2025 is likely to introduce taxpayer-friendly reforms.
- Stakeholders hope these changes will streamline compliance, improve cash flow for businesses, and ensure a fairer GST framework.
Conclusion
The expectations from the Union Budget 2025 reflect the collective need for a more efficient and equitable tax system. If implemented, these reforms will not only ease the compliance burden but also foster a growth-oriented environment for businesses across India.
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