Simplification to be the focus for taxation in 2025

New Delhi: Simplification of direct and indirect tax policies will be the main focus area for the government in the New Year after beginning the review of the six-decade-old income tax law and rationalisation of the GST rate in 2024.

With monthly gross GST collections stabilising at around Rs 1.8 lakh crore and gross direct tax collections steadily rising at 20 per cent rate, the effort to ease compliance burden for individuals as well as corporates will gain traction.

On the GST front, individuals are awaiting a tax cut in life and health insurance premiums, which will bring down the cost of insurance, while businesses are awaiting the operationalisation of the GST Tribunal for faster dispute resolution.

Also, the work on rationalising GST rates and slabs has been put in motion with a group of ministers (GoM) deliberating on the changes, but a final decision is expected only by the GST Council, comprising the Centre and state finance ministers.

Currently, GST is a four-tier tax structure with slabs at 5 per cent, 12 per cent, 18 per cent and 28 per cent. Under GST, essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab.

Luxury goods like cars, washing machines, and demerit goods like aerated water and tobacco products attract cess on top of the highest 28 per cent slab.

On the income tax front, the government has started a review of the Income Tax Act, 1961, to make it simple and easier to understand. Amendments to the I-T law, removing the obsolete provisions and making it concise, is likely to be tabled in Parliament as early as the Budget session.

Besides, coordination between law enforcement agencies to curb tax evasion and strengthen anti-money laundering provisions over the years has earned India the highest rating from the global financial watchdog Financial Action Task Force (FATF) in 2024.

India has been placed in "regular follow-up" -- which is the highest rating category by FATF for India's efforts to implement measures to tackle illicit finance including money laundering and terror funding. UK, France and Italy are among the only G-20 countries which have been placed in this category apart from India.

On the GST front, tax officers grappled with fake registration for the sole purpose of fraudulently claiming input tax credit (ITC) and defrauding the exchequer.

As per information shared with the Parliament, between April-October, 2024, GST officers detected cases of Input Tax Credit evasion of Rs 35,132 crore by 17,818 fake firms and arrested 69 persons.

To check fake entities, the GST Council, comprising the Centre and states, has already brought in biometric authentication for certain suspicious businesses, under which the person seeking GST registration will be asked to go to an Aadhaar centre to have his biometrics verified.

However, with trade and industry flagging challenges faced in getting registration, the GST Council in its meeting on December 21 decided to streamline the GST registration process and tasked the tax officers to work on its implementation.

Goods and Services Tax (GST) authorities have so far been using OTP-based Aadhaar authentication to establish the identity of the applicants, seeking registration.

AMRG & Associates Senior Partner Rajat Mohan said continued emphasis on rationalizing tax slabs, reducing litigations through a centralized appellate Tribunal, and leveraging data analytics will be crucial.

The introduction of the Invoice Matching System (IMS) in 2025 will enhance transparency and accuracy in GST filings by automating invoice reconciliation and reducing fraudulent ITC claims.

"However, the transition may pose challenges for businesses, particularly small taxpayers, who could face increased compliance costs and technical difficulties," Mohan said.

Deloitte India, Partner and Leader, Indirect Tax, Mahesh Jaising said in 2025, anticipated reforms include GST rate rationalization, particularly for real estate and insurance sectors, as examined by GoMs, alongside the operationalization of the GST appellate tribunal.

"Technology upgrades, such as expanded B2C e-invoicing and implementation of the recently launched Invoice Management System, signal the government's commitment to fostering a simplified, industry-friendly, and growth-oriented tax ecosystem," Jaising said.

Nangia Andersen LLP, Executive Director- Indirect Tax, Sivakumar Ramjee said in 2025, the Government is expected to focus on improved GST collection through GST amnesty schemes, bring clearer rules to tax Cryptos and Virtual assets, operationalize the GST tribunals, bring changes in E-way bill procedures and streamline IMS & introduction of Multi-factor authentication for accessing GSTN portal as an additional layer of security.