RECENT DEVELOPMENTS IN ECONOMY, INDIRECT TAXES AND GST

The Asian Development Bank (ADB) has raised India’s growth forecast for FY 2025-26 to 7.2% from 6.5% and projected 6.5% to be for 2026-27, citing stronger than expected Q2 performance driven by robust domestic consumption and GST rate cuts. Also, growth is likely to be moderate in H2 of the current fiscal. This growth projection is the highest after Vietnam (7.4% for 2026). Global economic growth is around 3.2% only. India’s risks are now balanced with downside risks emanating from trade tension and weather uncertainty while US tariff relief could bring an upward effect.

According to Indian FM, India continues to be the one of the fastest growing major economy globally. Indian economy’s growth has become more broad based over last decade. Sustained investment and various structural reforms have helped in strengthening the economy. The FM has also expressed in Parliament that our economy has shifted from state of ‘fragility’ to ‘fortitude’. It also moved from external vulnerability to external resilience as its debt to GDP ratio is likely to be achieved at 56.1% in 2015-26.

According to new projections, India’s economic growth may exceed 7% for 2025-26 with GDP post four trillion, keeping 8.2% growth in mind. It may also be noted that Economic Survey 2024-25 had projected a growth of 6.3%-6.8% only for FY 2025-26. The present situation reveals that the growth numbers speak of confluence of stable inflation, various reforms measures and sustained public investment fighting the challenges.       

There is now a new law to enable levy of higher duties on tobacco and tobacco related products w.e.f. notified date. The Ministry of law and justice, Government of India has notified the enactment of the Central Excise (Amendment) Act, 2025 after the assent of President of India as an Act No. 34 of 2025 w.e.f. 11 December, 2025 to amend the Central Excise Act, 1944.

The Act provides for the levy and collection of central excise duties on goods manufactured or produced in India.  Central excise duties on many items were repealed with the introduction of the Goods and Services Tax (GST) in 2017, except for certain items such as tobacco and tobacco products.  Along with GST, GST compensation cess was also introduced on products such as tobacco to compensate states for revenue loss due to the introduction of GST. Thus, tobacco and tobacco products are currently subject to GST, compensation cess, and central excise duty. The compensation cess is planned to be discontinued.  The Bill aims to revise the rate of central excise duty on tobacco and tobacco products to keep taxes on these products at the existing level. 

The Health Security se National Security Cess Bill, 2025 had been introduced in Loksabha on 5th December, 2025 to create a clear legal framework for a special excise cess. The Bill proposes to levy a cess on the machinery installed or the processes undertaken for the manufacture or production of goods, manually or through hybrid processes. The proceeds of this cess will flow into the Consolidated Fund of India and will support the Government in meeting expenditure related to National Security and Public Health. Initially the Bill is applicable to pan masala, however, the Government may notify to extend the cess to other goods, if necessary. It lays down a detailed and systematic statutory framework governing how the cess is levied, calculated, administered, monitored and enforced including mechanisms for audit and appeals. The principal elements are covered in a clear and clause-based format that enhance ease-of-reference for implementation.

The said Bill has since been enacted after the assent of the President as an Act No. 35 of 2025 on 15th December 2025 to augment the resources for meeting expenditure on national security and for public health, and to levey a cess for the said purposes on the machines installed or other processes undertaken by which specified goods are manufactured or produced and for matters connected therewith or incidental thereto.

There was a question raised in Lok Sabha on 15th December, 2025 on revenue losses to states due to recent GST rate rationalization to which the Finance Minister replied that the State of Kerala had undertaken its own estimates of the potential revenue loss arising on account of GST rate rationalisation by focusing on four sectors - automobiles, insurance, cement and electronics. As per their estimates, from these sectors, the State expected to lose around Rs. 2,500 Crore annually and the total annual revenue loss is likely to be more than Rs. 8,000 Crores for Kerala. Further, based on the data of consumption patterns and entire value chain for the period 2023-24, the items that moved from the 28% to the 40% tax bracket are projected to account for additional revenue of approximately Rs. 45,570 Crore. The broader rate rationalization initiative is expected to lead to a revenue implication of around Rs. 93,300 Crore of net negative. These two figures are likely to result in about Rs. 47,700 Crore of net negative. However these figures should not be viewed as definitive since tax collection is not static and there is buoyancy. Moreover, lower rates are likely to lead to improved compliance and fewer disputes.

Annual returns and reconciliation statements for the FY 2024-25 are to be filed by 31st December 2025 and there do not seem to be any reason or chance for extension. GSTN has issued a set of consolidated FAQ’s on this which may be referred to by taxpayers and professionals. Also, smarter credit note handling has been introduced in IMS providing flexibility in handling audit notes involving in eligible input tax credit.

Credit Note Handling in IMS

• GSTN has rolled out an Smarter Credit Note Handling functioning by upgrading to the Invoice Management System (IMS) on the GST portal, introducing greater flexibility and accuracy in the handling of credit notes and Input Tax Credit (ITC).
• This update addresses long-standing compliance challenges faced by taxpayers where automatic ITC reversals occurred even in cases where credit was never availed or had already been reversed.
• Accordingly, recipients of credit notes will now be required to explicitly confirm whether the acceptance of a credit note should result in a reduction of ITC. Earlier, acceptance of a credit note would often trigger an automatic ITC reversal, irrespective of the actual credit position of the recipient.
• The revised system will now allow taxpayers to exercise an informed choice at the time of acceptance.
• While accepting a credit note on the IMS dashboard, taxpayers can now select one of the following options: Yes or No

a)  If the taxpayer selects “Yes”, the ITC will be reduced. This option is intended for situations where eligible ITC was availed earlier and needs to be reversed in line with the credit note.

b)  If the taxpayer selects “No”, the ITC will remain unchanged. This option is particularly useful where ITC has already been reversed in earlier periods or where ITC was never availed in the first place.

· This flexibility ensures that ITC reversals reflect actual credit utilisation rather than system-driven assumptions.

(Source: GSTN Portal dated 18.12.2025)