As India gears up for the Union Budget 2025-26, the stakes are high for an economy navigating the complexities of global uncertainties and domestic ambitions. This budget will be a litmus test of the Government’s ability to strike a balance between fiscal discipline and growth stimulus, especially in a year where industries, investors, and consumers alike are looking for policy measures that promote resilience and competitiveness. From tax reforms to trade facilitation, the upcoming budget is expected to lay the groundwork for a sustainable growth trajectory, catering to the evolving needs of businesses while addressing socio-economic priorities. The expectations are particularly significant in the realm of Indirect Taxes, where rationalization, simplification, and compliance reforms could set the tone for a more dynamic and investment-friendly environment.
The Union Budget 2025-26 provides an opportunity to address lingering issues, introduce sector-specific incentives, and ensure the tax system is aligned with the country’s long-term growth objectives. In this context, expectations from the indirect tax sector are focused on rationalization, simplification, and industry-specific reforms, which could significantly impact both domestic and multinational enterprises.
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While the GST Council primarily drives GST law changes, Indian businesses still view the Union Budget as an opportunity to advocate for indirect tax reforms, particularly a simplified GST regime often referred to as GST 2.0.
In the Customs landscape, the upcoming Budget is anticipated to unveil the restructuring of import duties on raw materials, essential inputs, and capital goods. This move is likely aimed at incentivizing domestic manufacturing of finished products and machinery under the Phased Manufacturing Program (PMP). Customs compliance may also be significantly enhanced through digital transformation initiatives. This includes leveraging API integrations to streamline data exchange, improving data filing accuracy and efficiency, and facilitating user-friendly access to the ICEGATE portal.
There has been a long pending demand for an amnesty scheme to settle legacy disputes under Customs laws. The Government should definitely look at measures to clear the backlog of cases and provide companies an opportunity for a fresh start.
There is also an expectation to streamline procedures under the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020. Simplifying these processes like issuing clear instructions to the filed officers to ensure strict adherence to the timelines for verification, demanding bonds instead of BGs, and demanding BGs only for specific vendors where a retrospective check has not been applied, would facilitate smoother utilization of FTAs, reducing operational challenges for importers.
While major changes in GST are not expected, however, the industry is hoping that the Government announces some roadmap for simplifying the rate structure, which is only becoming more complicated year after year. The last couple of GST council meetings leading up to the Budget have been quite eventful to say the least. The decision on the reduction of GST rates on the insurance sector is still pending and the industry remains hopeful for an early resolution. Similarly, the E-commerce operators are hoping for suitable clarification on doing away with the TCS requirement on zero-rated supplies. Further, a requirement for TCS registration in each State may also be done away with.
There’s an expectation to lower GST rates on essential FMCG items from 18% to 12% to boost consumer demand and alleviate the financial burden on consumers. The sector seeks targeted tax incentives to strengthen rural distribution networks and encourage investment in affordable product lines tailored for rural consumers.
In line with the objective of easing compliances in the MSME sector, it is expected that single-window compliance and automated Input Credit reconciliation for MSME service providers in areas like hospitality, tourism, and logistics to ease administrative burdens may be introduced.
The upcoming budget will set the trajectory for the next five years and give a sneak peek into the Government’s focus areas to continue with the momentum of making India the fastest-growing economy in the world.
This article was originally published in News18 on 31 January 2025 Co-written by: Rajat Bose, Partner; Ankit Sachdeva, Senior Associate. Click here for original article.
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Contributed by: Rajat Bose, Partner; Ankit Sachdeva, Senior Associate
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