Overview

Many GST clauses in both Bills say they will take effect from a date to be notified. The legal change is included in the Finance Bill, but the start date may be deferred by notification. In the Finance Bill 2026, the interim appellate arrangement clause also specifies a date, while several other clauses still rely on notification.

This article compares the GST law changes proposed in the Finance Bills 2025 and 2026. The final law may differ after Parliament passes it.

The problem taxpayers were dealing with

Most GST issues for businesses are not about complex planning. It is about day-to-day process gaps.

Problem 1: Weak traceability in certain goods

Some goods have a higher risk of diversion, under-billing, or unrecorded movement. When traceability is weak, scrutiny rises. Record gaps become penalties.

Problem 2: Discounts and credit notes cause mismatches

Many suppliers give rebates or post-sale discounts. In GST, the issue is not the discount itself. The issue is whether both parties treat it the same way in records and ITC. When the supplier reduces liability, but the recipient does not reverse the ITC, disputes start.

Problem 3: Penalty disputes and appeals consume time and cash

Penalty orders can be passed even when tax is not demanded. Businesses often appeal, but the system aims to filter out weak appeals and reduce delays.

Budget 2025 and Budget 2026 respond to these problems in different ways

• Budget 2025 is stronger on enforcement and penalty structure, especially track and trace and penalty-only appeal deposits.
  
  
• Budget 2026 is stronger on cleaning up discount compliance, refund friction, and IGST place of supply rules for intermediary services.

The solution path taken in Budget 2025

Track and Trace under GST (new CGST section 148A)

Budget 2025 introduces a Track and Trace framework by inserting section 148A in the CGST Act. This is a system enabling provision. It does not automatically apply to all goods.

It allows the Government, on Council recommendation, to notify:

• specific goods, and
• specific persons or classes of persons who manufacture, deal in, or otherwise handle those goods.

Once notified, the system can require a unique identification marking on goods or packages and can require electronic storage and access to the information embedded in that marking.

The provision also allows detailed compliance requirements. It can require people covered under the system to:

• furnish information in the prescribed form and within the prescribed time,keep and maintain records in the prescribed manner,report details of manufacturing machinery, such as identity, capacity, and operating duration, where prescribed, and meet other prescribed requirements connected with the system.

What this means in simple terms:

If your goods fall under a future notification, you should expect more stringent process requirements at the factory and warehouse levels. Labelling, scanning trails, stock movement logs, and system exports are more important. It becomes harder to defend gaps with informal explanations.

A new penalty linked to Track and Trace (new CGST section 122B)

Budget 2025 also introduces section 122B, a specific penalty for Track and Trace non-compliance.

If a person covered under section 148A violates the requirements, the penalty is:

• Rs. 1,00,000/- or 10 per cent of the tax payable on such goods, whichever is higher,and it is stated to apply in addition to other penalties.

Appeals get stricter for penalty-only orders (CGST sections 107 and 112)

Budget 2025 introduces a meaningful change for taxpayers subject to penalty-only orders.

It adds a rule that an appeal against an order imposing only a penalty, and not a tax, cannot be filed unless the taxpayer pays 10 per cent of the penalty as a pre-deposit, in the manner stated in the amended section 107.

At the next appeal stage, the amendment to section 112 uses “in addition to” wording, which means the second stage deposit requirement is on top of what was already paid at the first appeal.

Why is this a compliance safeguard?
It pushes businesses to appeal only where they have strong facts and clean records. It reduces casual litigation.

Credit notes safeguards tighten output tax reduction (CGST section 34)

Budget 2025 also substitutes key wording in section 34 so that a supplier’s reduction of output tax liability through a credit note is restricted if the recipient does not reverse attributable ITC in cases where the recipient is registered. For other cases, it links restriction to whether the tax incidence has been passed on.

Practical takeaway:

Credit notes cannot be treated as one-sided adjustments in day-to-day practice. Vendors and customers need a method to confirm ITC reversals or align records; the supplier’s tax adjustment becomes more difficult to sustain.

The solution path taken in Budget 2026

Budget 2026 does not introduce a new GST penalty section in the set of GST clauses we are relying on (clauses 137 to 141 in the Finance Bill 2026). The approach here is different. It aims to reduce common disputes by making the compliance test clearer.

1) Post supply discounts get a clearer rule (CGST sections 15 and 34)

This is one of the most useful practical changes for normal businesses.

Budget 2026 substitutes section 15(3)(b), which deals with discounts given after supply. The revised approach focuses on two checks:

• The supplier issues a credit note for the discount, and recipient reverses ITC attributable to that discount in the manner linked with section 34.

Budget 2026 also updates section 34 to explicitly include credit notes issued where post supply discount under section 15(3)(b) is given.

Why this matters for taxpayers:

Businesses often struggle to prove discount linkage and documentation when discounts are settled later. This draft structure makes the compliance test more straightforward. It still requires discipline. You must have a credit note workflow and evidence of ITC reversal.

2) Refund provisions get process tuning (CGST section 54)

Budget 2026 amends section 54(6) to expand the provisional refund route to cover more cases linked with unutilised ITC under the relevant category described in the clause.

It also amends section 54(14) by excluding from the threshold limit wording the refund of tax claimed on the export of goods out of India with payment of tax. The Notes on Clauses indicate the intent is to remove the threshold friction for that category.

Practical takeaway:

Refunds can still be delayed if your documentation is weak. This change improves the rule design for some refund situations, but it does not replace good records.

3) Interim appeal arrangement until National Appellate Authority exists (CGST section 101A)

Budget 2026 inserts a new sub-section 101A(1A). Until the National Appellate Authority is constituted, the Government may empower an existing authority to hear appeals under section 101B. It also clarifies that “existing authority” includes a tribunal.

This is a process safeguard. It reduces the risk of disputes being stuck due to a missing forum.

4) IGST intermediary services place of supply change (IGST section 13(8)(b) omitted)

Budget 2026 omits section 13(8)(b) of the IGST Act, which relates to intermediary services. The Notes indicate that the place of supply will then follow the general rule under section 13(2), meaning the location of the recipient.

Why this matters:

If you provide cross-border services and your role can be classified as an intermediary, place of supply impacts tax position, pricing, and refund claims. You should review contracts and the actual scope of work to avoid classification disputes.

Union Budget 2026 vs Budget 2025 comparison table

Topic	Budget 2025 (Finance Bill)	Budget 2026 (Finance Bill)
Main GST compliance theme	Stronger enforcement controls and appeal discipline.	Cleaner rules for discounts, refunds, and IGST place of supply.
New compliance tool	Track and Trace enabled via the new CGST section 148A for notified goods and persons.	No new tracking tool inserted in the key GST clauses discussed.
New penalty	New CGST section 122B for Track and Trace breach. ₹1 lakh or 10% of tax payable, whichever is higher.	No new GST penalty section, such as 122B, has been inserted into these clauses.
Discounts and credit notes	Tightens the credit note benefit where the recipient ITC reversal is missing.	Rewrites the post supply discount test in section 15 and aligns section 34 for discount credit notes.
Appeals	Penalty-only orders need 10% penalty pre-deposit at the first appeal. Next stage deposit is “in addition to” the earlier deposit.	No similar appeal deposit change in the GST clauses discussed.
Refunds	Not a key item in this comparison set.	Section 54 changes to the provisional refund scope and threshold language for export-with-tax refunds.
IGST intermediary	Not part of the key 2025 changes discussed here.	IGST 13(8)(b) omitted. Notes point to section 13(2) rule.

Options for businesses after these two Budgets

Option 1: Track and Trace readiness plan (for manufacturers and high scrutiny goods)

Choose this option if your industry could reasonably be covered by a notified Track and Trace system in future.

What you should prepare:

• Packaging stage mapping of where a unique marking could be applied
• Warehouse scanning discipline and stock movement trails
• Ability to export records quickly in a prescribed format
• Clear ownership of data across plant, warehouse, transport, and sales teams

This is not speculation about which goods will be notified. It is preparation for the compliance shape that section 148A allows.

Option 2: Discount and credit note control upgrade (for B2B and distribution-heavy models)

Choose this option if your business uses volume rebates, rate difference, or post-supply discount settlement.

Minimum controls:

• A written discount policy aligned with actual commercial terms
• Credit note issuance approvals and audit trail
• Method to obtain ITC reversal confirmation from customers, where applicable
• Monthly reconciliation between credit notes, returns, and ledger impact

Budget 2026 clarifies the legal rule. It will still fail in practice if your process is weak.

Option 3: Penalty appeal filtering and case hygiene (for litigation-heavy taxpayers)

Choose this option if your business often disputes penalties.

Key steps:

• Build a simple decision rule for appeals, based on evidence strength
• Document first, respond second. Avoid late replies and inconsistent statements
• Track penalty-only order deposits in finance planning because appeals have an entry cost

Selection: Which set of changes matters most to you

Use this simple selection guide.

• If you manufacture or deal in goods that may face high scrutiny, Budget 2025 is the bigger shift because Track and Trace plus section 122B creates direct penalty exposure once notified.
  
  
• If you run rebates and post supply discounts, Budget 2026 is the bigger shift because sections 15 and 34 make the discount compliance test clearer. It still demands ITC reversal discipline.
  
  
• If you provide cross-border services and could be classified as an intermediary, Budget 2026 is a major shift due to the omission of IGST section 13(8)(b).
  
  
• If you often contest penalty-only orders, Budget 2025 matters more because of the appeal pre-deposit conditions and the “in addition to” deposit wording at the next stage.

FAQs

• 1) What is the Track and Trace rule introduced in Budget 2025 under GST?
  Finance Bill 2025 inserts CGST section 148A. It allows the Government to notify specific goods and persons and require unique marking plus digital traceability records.
  
  
• 2) What is the penalty for Track and Trace non-compliance under GST?
  Finance Bill 2025 inserts CGST section 122B. Penalty is ₹1,00,000 or 10% of tax payable on such goods, whichever is higher, in addition to other penalties.
  
  
• 3) Did Budget 2026 add any new GST penalties?
  In the GST amendments in Finance Bill 2026 (sections 137–141), there is no new penalty section like 122B. The changes focus more on clearer rules and process fixes.
  
  
• 4) What changed in GST law for post-supply discounts in Budget 2026?
  Finance Bill 2026 rewrites CGST section 15(3)(b). A discount is applied after the supply is accepted when the supplier issues a credit note, and the recipient reverses the attributable ITC, as per section 34.
  
  
• 5) Why are credit notes riskier after Budget 2025 and Budget 2026 changes?
  Budget 2025 restricts the output tax reduction for suppliers if the recipient does not reverse attributable ITC in registered cases. Budget 2026 tightens the post-supply discount test and links it directly to the credit note plus ITC reversal.
  
  
• 6) What is the new GST rule for appeals against penalty-only orders in Budget 2025?
  The Finance Bill 2025 amends sections 107 and 112 of the CGST. You must pay 10% of the penalty to file the first appeal, and another 10% at the next stage in addition to the first deposit.
  
  
• 7) What is the Budget 2026 change for IGST intermediary services?
  Finance Bill 2026 omits IGST section 13(8)(b). This removes the special place-of-supply rule for intermediary services under that clause, so businesses should reassess their contracts and classifications.