INTERIM UNION BUDGET 2024-25: MAJOR CHANGES IN INDIRECT TAXES

[Dr. Sanjiv Agarwal]

Interim Union Budget 2024-25 was presented in the Parliament by the Finance Minister on 1^st February, 2024. As it is an Interim Budget, there are no major policy announcements or tax provisions announced.

Keeping with the convention, she did not propose to make any changes relating to taxation and proposed to retain the same tax rates for direct taxes and indirect taxes including import duties. There is no tweaking of tax rates, concessions or exemptions.

The Interim Budget can be summed up as a result of conservatism, confidence and continuity. It was one of her shortest ever budget speech (57 minutes). All in all, Budget appears to be a balance of discipline, welfare and inclusive growth in the backdrop of turbulent global economic scenario this reflects confidence. That Government’s economic and infra reforms over last decade have resulted in sustainable economic growth.

The Budget focuses on fiscal consolidation and higher capex world benefit sectors like housing, defence, railways, tourism, power etc. The Budget has listed priorities if the present Government is reelected for next term. It lays down macroeconomic roadmap giving some hunts to financial sector, industry and trade. In PM’s words, Interim Budget gives the guarantee of strengthening the foundation of developed India by 2047. It is a reflection of the aspirations of young India.

The Finance Bill for 2024 seeks to give effect to the GST Council’s decision on registration of machinery by tobacco and pan masala manufacturers. This is an evasion-prone sector. A committee set up to look at various aspects recommended in the case of certain specific commodities the machines with which packaging is done be registered on a common portal. And now, the penalty provision has been made in case they fail to register the machines.

GST Collection has averaged Rs. 1.67 trillion January, 2024. It is expected that Rs. 1.7 trillion may be the average in FY 2025.

There has been an increase in the amount devolved to states. Centre will share about 32 percent of central taxes with the states during FY 2024-25 and 2023-24, through 15^th Finance Commission had recommended @ 42%. Further, tax GDP ratio is projected to be highest in FY 2025 in last ten years @ 11.69%

Indirect Taxes in & around Interim Budget

• GST has reduced compliance burden on trade and industry by unifying highly fragmented indirect tax regime.
• No change proposed in tax rates. Same rates for indirect taxes including import duties retained for now.
• Indirect taxes contribution in central revenue :

• GST & other taxes            18 %
• Union excise duties           5%
• Customs                            4%

• Concept of Input Service Distributor (ISD) to be made mandatory.
• Amendments in sections 2(61) and 20 in relation to definition of ISD and manner of distribution of ITC by ISD
• New section 122A proposed for levy of penalty in case of failure to register certain machines used in manufacture of goods as per special procedure notified u/s 148 of CGST Act, 2017 (for tobacco, pan masala etc)
• Average monthly gross GST collections double to Rs. 1.66 lakh crore in FY 2023-24.
• Reduction in logistics cost and prices of goods / services.

• The Finance Bill, 2024 has proposed the following changes in CGST Act, 2017, based on GST Council’s recommendations in its 50^th and 52^nd meetings:

• Amendment in the Definition of Input Service Distributor (ISD) [Section 2(61) of the CGST Act] - ISD to include distribution of ITC in respect of services, tax on which is liable to be paid under reverse charge mechanism.

• Amendment in the manner of distribution of ITC by the ISD (Section 20 of the CGST Act)- Any office of the Registered Person which receives common ITC will be mandatorily required to be registered as ISD and than distribute the ITC to distinct persons; Freedom will be provided for distribution of ITC of CGST as CGST or IGST and the ITC of IGST as IGST or CGST - at the option of ISD person transferring the ITC to distinct person; Time limit and conditions for distribution of ITC by ISD to be prescribed in Rules.
• Insertion of new section 122A for levying penalty in case failure to register certain machines used in manufacture of goods as per special procedure notified u/s 148 of CGST Act (i.e. Tobacco, Pan-masala and similar items)- New section 122A to prescribe penalty for not failure to register machines used in manufacture of goods as per special procedure.

• The changes in law shall be effective only after enactment of Finance Bill.

************