As is the case every year, the build-up to Budget 2025 was filled with expectations. The Economic Survey made a clear statement that the government should focus on deregulation and allow businesses to be run as businesses.

The first part of the Finance Minister’s speech raised hopes that the recommendations of the Economic Survey would be implemented. The Budget speech added to the sense of anticipation by reserving the best for the last — increasing the threshold exemption limit with rebate to ₹12 lakh. Changes were made to rates for tax deduction at source to ensure that there is more money in the hands of the middle-class taxpayer.

However, at the end of the Budget speech, one felt that much more could have been done on the recommendations of the Economic Survey in terms of opening up the economy. A question that arises is: Should the Economic Survey be presented a bit earlier so that the Government has time to implement some of the recommendations in the annual Budget?

The changes in income tax provisions could put some additional money in the hands of the taxpayer. However, it is widely felt that for there to be a 360 degree impact on consumption and investment, GST rates should also be made conducive. Budget 2025 has focused on settling GST-linked administrative issues. Some decisions here are slightly questionable.

GST provisions

When introduced in 2017, GST laws prevented availing input tax credit on construction services unless the output service was also a construction service. In 2018, the Orissa High Court permitted availing credit forcing the department to knock on the doors of the Supreme Court. In October 2024, in what can be called a landmark judgment, the Supreme Court ruled that credit could be claimed if the functionality test is satisfied. The apex court based its reasoning on the fact that plant and machinery would meet the test of functionality in a mall. The GST Council decided to contest this decision on all fronts — a review petition was filed before the Supreme Court in December and at the 55th meeting of the GST Council held in December, and it was proposed to amend Section 17(5)(d) which blocked such credits by including the word “Plant and Machinery”. Budget 2025 has executed the decision of the GST Council by proposing the amendment with retrospective effect from July 2017.

The provision makes it clear that the government does not agree with the decision of the Supreme Court on this clause and is hence overriding the decision. Taxpayers would be getting worried about such unbridled powers with the government and the lack of alternatives for appeals. GST Tribunals are still a work-in-progress and are going to be flooded with a plethora of appeals when fully functional.

Another proposal in the Budget that is detrimental to the taxpayer is the provision to make a mandatory pre-deposit of 10 per cent of the penalty in cases where only the penalty levied is being appealed against. This proviso is also applicable at appeals that are scheduled to be filed at the Tribunal level.

The Economic Survey noted that “Implementation of GST generated a host of positive externalities through enhancement in ease of doing business, giving impetus to digitalisation, fostering economic integration via the creation of a single market, and adding to the buoyancy of revenue generation and collection”.

It also stated that for 23 States in the country, GST was the main source of revenue. While the Income Tax Act could be simplified, GST laws would continue to throw up frequent surprises.

The writer is a chartered accountant

Published on February 4, 2025