GST Changes in Budget 2025-26: Key Amendments

The Union Budget 2025-26 brought a series of significant amendments to India's Goods and Services Tax framework. Whether you are a small business owner, a mid-sized manufacturer, or a service provider, these changes have a direct bearing on your compliance obligations and working capital. Here is a comprehensive breakdown of the most important GST changes and what they mean in practice.

Input Tax Credit (ITC) Restrictions Tightened

One of the most impactful changes is the tightening of Input Tax Credit eligibility. The government has introduced stricter conditions for claiming ITC, aimed at curbing fraudulent claims that have cost the exchequer thousands of crores in recent years.

• Invoice matching now mandatory: ITC can only be claimed when the supplier has uploaded the invoice in GSTR-1 and the details match your GSTR-2B. Any mismatch will automatically result in reversal of the credit.
• Time limit for ITC claims reduced: Businesses must now claim ITC within the earlier of the due date of the September return or the actual filing date of the annual return for the relevant financial year. Late claims will be permanently forfeited.
• Blocked credits expanded: ITC on certain categories of expenditure, including specific construction-related services and employee welfare expenses beyond defined thresholds, has been added to the blocked credit list under Section 17(5).

Action point: Reconcile your purchase register with GSTR-2B on a monthly basis. Do not wait until the year-end to identify mismatches.

E-Invoicing Threshold Lowered Further

The government has continued its push towards digitisation by reducing the e-invoicing threshold. Starting 1 April 2026, businesses with an aggregate annual turnover exceeding Rs 2 crore will be required to generate e-invoices for all B2B transactions.

This is a significant drop from the previous threshold of Rs 5 crore and brings a large number of SMEs into the compliance net for the first time. The rationale is clear: e-invoicing reduces tax evasion, improves data quality, and automates GST return filing.

• All B2B invoices must be reported to the Invoice Registration Portal (IRP) in real-time.
• Invoices not registered on the IRP will not be considered valid for ITC purposes.
• Penalties for non-compliance include Rs 10,000 per invoice or 100% of the tax due, whichever is higher.

Action point: If your turnover is between Rs 2 crore and Rs 5 crore, start integrating your billing software with an e-invoicing solution immediately. Test the system well before the April deadline.

GST Rate Rationalisation

The GST Council, acting on the recommendations of the Group of Ministers on rate rationalisation, has made several adjustments aimed at simplifying the rate structure and addressing inverted duty anomalies.

• Textile sector: A uniform 12% GST rate now applies across the textile value chain, from yarn to finished garments. This resolves the long-standing inverted duty structure that forced manufacturers to accumulate ITC refund claims.
• Food processing: Pre-packaged food items below Rs 50 have been moved to the 5% slab from 12%, benefiting FMCG companies and consumers alike.
• Professional services: Legal and accounting services provided to businesses now attract a uniform 18% rate, removing the earlier ambiguity around certain advisory services.

New Compliance Requirements for Composition Scheme Dealers

Businesses under the composition scheme now face enhanced reporting obligations. While they continue to file quarterly returns, they are now required to submit a half-yearly reconciliation statement that includes invoice-level purchase details. This is designed to cross-verify ITC claims by their suppliers.

Additionally, the turnover threshold for the composition scheme remains at Rs 1.5 crore for goods and Rs 50 lakh for services, but businesses must now declare their turnover on a quarterly basis rather than annually.

Impact on SMEs: What to Do Now

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