Budget 2025: Will GST Rates Be Rationalized This Year?

As India gears up for the Union Budget 2025, industry leaders are calling for urgent changes to be made to the Goods and Services Tax (GST) system in order to ease operational procedures and help the economy. For the most part, specialists are trying to streamline taxation measures, recalibrating tariffs, and resolving issues unique to the sectors. Among the key expectations is the streamlining of the existing multi-layered GST structure. Industry experts are advocating for a three-tier structure as opposed to the existing numerous tariff bands, contending that compliance would improve. The designed structure proposes the combining of the 5% and 12% banding while continuing to peg the 18% banding for most goods and the 28% for luxury goods respectively.

"There is a need to revise the existing system of GST as it affects the confidence of entrepreneurs while ensuring that people are staying in compliance with the tax. We expect the government to take this into consideration by reducing the compliance burden of smaller businesses by allowing them to file their returns including all taxpayers with turnover of not more than Rs 10 crore on a quarterly basis. Besides, a reduction in the input tax credit requirements can increase the efficiency of working capital management of the businesses" states Ridhima Kansal, Director of Rosemoore.

The e-commerce and retail sectors are among the most vocal when it comes to their expectations for GST reforms. They want clearer laws regarding the cross-border trade of e-commerce and relaxed registration requirements. There is also increasing pressure to cut GST rates on other essentials, as well as on environmentally friendly products. "The retail segment deserves special consideration in this budget, especially in terms of GST for sustainable items. We suggest a lower GST of 5% on approved sustainable goods and their packaging materials, and this will both encourage the producers and the consumers to be environmentally friendly. It is also worth mentioning that a small tax should be extended by the government for expenses incurred in sustainability training and certification," says Raghunandan Saraf, Founder & CEO, Saraf Furniture.

The MSME sector which is the backbone of the Indian economy is also urging for some changes within the GST system. Some of the key requests are to increase the annual turnover limit for registration under GST, easier return filing, and greater assistance to small traders under a new scheme. "Retailers and other micro, small and medium enterprises need more help when it comes to adherence to GST rules. We are looking forward to a special composition scheme where payments are made quarterly and returns filed annually for businesses with turnover up to Rs 5 crore. There is a dire need and the budget should tackle the issue of working capital constraints by providing quicker GST refunds along with reduced tax on key business services," notes Pooja Choudhary, Founder, Lavanya The Label.

Other weighted expectations observed are realization and the introduction of a real-time GST return filing system, amendment of past errors and greater efficiency, provision of GST compensation to states for an additional period of two years, gradual inclusion of petroleum products to the umbrella of GST VAT taxation, GST rationing on healthcare services and medical aids, together with rationalization of healthcare VAT taxation, have all received more attention alongside concerns on technology capacity and compliance.

The real estate segment, in particular, anticipates reforms in the GST credit that would allow for the tax charged at the purchase of construction materials to be deducted from the GST for commercial properties and a further drop in the added tax rate for uncompleted residential buildings. Also, regarding the joint development agreements and other land transactions, the industry will hopefully be provided with comments as to how the value-added tax for real estate transfer will be levied.

When examining the export sector, there is a strong emphasis on claiming input tax credits on exports and simplifying the process of expediting GST refunds. Besides this, industry bodies are also focusing on global competitiveness by advocating for zero-rating of exports across all sectors. The expectations for the upcoming budget are in regards to addressing these issues all while having restraint on spending. Such progress is vital for the government as it seeks to strike the ideal balance between tax collection and the industries and companies demanding relief in taxation. The current goal of India is to reach an economy of 5 trillion dollars and a positive reform in the GST structure is said to help in achieving this.

With a reinforced business-friendly environment coupled with low taxation, India will be able to significantly promote business growth, therefore ensuring the effective implementation of these potential reforms. However, the requisite is that the Indian government will not only work on lowering the taxation but also search for alternative methods to raise revenue.