Latest Updates on Income Tax, GST & Corporate Law: 3 February 2025
Income Tax
Update 1: New Scheme to ALP on International Transactions for a Block Period of 3 years
In the budget 2025, the finance minister proposed a new scheme for determining the Arm’s Length Price (ALP) of international transactions for a block period of three years. Under the proposed amendment to Section 92CA of the Income-tax Act, the ALP determination for an international transaction or a specified domestic transaction (SDT) will now be valid for a three-year block period, subject to certain conditions. At present, transfer pricing provisions require an annual assessment of ALP often requiring business to conduct repetitive audits and engage in prolonged disputes with Revenue authorities.
Update 2: Change in Period of registration of smaller trusts or institutions
To reduce the compliance burden for the smaller trusts or institutions, it is proposed in budget 2025 to increase the period of validity of registration of trust or institution from 5 years to 10 years, in cases where the trust or institution made an application under sub-clause (i) to (v) of the clause (ac) of sub-section (1) of section 12A, and the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12, does not exceed Rs.5 crores during each of the two previous year, preceding to the previous year in which such application is made.
Goods & Services Tax (GST)
Update 1: Rationalization of GST Rate
The Centre plans to simplify the GST structure by revamping slabs for better implementation and compliance. The focus will be on rationalizing the current four-slab structure and eliminating dual rates for certain products. The GST Council’s GoM has yet to submit its final report on the proposed changes.
Update 2: Change in GST Rules for Credit Note in Budget 2025
A supplier of goods or services can issue a credit note to the buyer in several instances. Typically, this happens if the supplier has made mistakes in the original invoice, such as declaring a value higher than the value of goods or services actually provided or has mentioned an incorrect higher GST rate. A credit note is also issued when goods are returned by the buyer. The Budget proposes that it is now necessary for the supplier to ensure that the recipient reverses ITC before such an adjustment is claimed.
Update 3: Finance Bill 2025 restricts ITC on Inputs used for construction of immovable properties
The FB restricts Input Tax Credit (ITC) on inputs used for constructing buildings, malls and other immovable properties, even if they are later leased or rented out, overriding the Hon’ble Supreme Court’s ruling in Safari Retreats. The amendment clarifies that ITC remains ineligible, regardless of the property’s use for taxable supplies. Additionally, to remove ambiguity, “plant or machinery” in Section 17(5)(d) has been changed to “plant and machinery”, aligning it with Section 17(5)(c) for consistency.
Corporate Law
Update 1: Carry forward of losses in case of merger or succession proposed in budget 2025
Amendments are proposed to provisions related to the carry forward and set-off of accumulated losses in cases of amalgamation or business reorganization, wherein the successor entity would be eligible to carry forward the accumulated losses, for the balance unexpired period of eight AYs alone. The proposed amendment aims to prevent the practice of ‘evergreening’ of losses, where losses of the predecessor entity are carried forward for a period of more than eight years through amalgamation, thereby ensuring a more disciplined and time-bound approach to loss carry-forward. These changes are proposed to be applicable for any amalgamation or business reorganization effected or brought into force on or after 1 April 2025.
Update 2: FDI Limit in Insurance Sector Raised to 100% in Budget
The FDI limit for the insurance sector will be increased from 74% to 100%, with conditions ensuring investments are fully directed into India. Additionally, the government will establish a forum to coordinate pension regulation and develop new pension products. A revamped Central KYC Registry is set to launch in 2025 to simplify and streamline the KYC process, making periodic updates easier. The approval process for company mergers will also be rationalized, allowing for faster and simpler procedures, including expanding the scope for fast-track mergers.
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