GST Council Approves Big Reforms: No Arrest Powers, INR 5 Crore Prosecution Threshold

The GST Council on Thursday approved a series of major enforcement and compliance reforms aimed at making the Goods and Services Tax system simpler and more business-friendly. The key decisions include removing arrest powers under GST, raising the prosecution threshold five-fold from INR 1 crore to INR 5 crore and reducing the general penalty from INR 25,000 to INR 10,000.

The decisions mark the second phase of GST 2.0, with the focus shifting from tax rate rationalisation to simplifying the way businesses and taxpayers deal with registration, returns, refunds, input tax credit and enforcement. No GST rate changes were announced at Thursday's meeting.

GST Arrest Powers Removed

One of the biggest decisions is the removal of arrest powers under GST. The move is aimed at shifting the enforcement mechanism towards identifying tax evasion through data, invoice matching and analytics rather than relying on criminal action. GST Council May Withdraw IGST Exemption on Gold, Silver, Platinum Imports.

The GST Council also increased the prosecution threshold from INR 1 crore to INR 5 crore. The minimum punishment has been removed, leaving the question of imprisonment, fine or both to judicial discretion.

GST Registration And Return Filing Simplified

The Council approved several measures to reduce compliance burdens for businesses. Low-risk applicants can already receive GST registration within three working days without officer intervention, with 61% of registrations currently taking place through the automated route. No More Arrests Under GST? Centre, States Weigh Decriminalisation Ahead of Council Meet.

The GST registration application will also be redesigned so applicants see only relevant fields and receive clearer explanations about required documents.

Businesses will be allowed to correct errors relating to earlier periods, including mistakes in a buyer's GST registration number. The Invoice Management System will also play a greater role in determining input tax credit based on invoices accepted by buyers.

GST Refunds To Become Faster

GST refund processing will also be streamlined. The deadline for acknowledging refund applications will be reduced from 15 days to 10 days. If no acknowledgement or deficiency memo is issued within 10 days, the claim will be treated as acknowledged.

The system will sanction 90% of eligible refund claims based on risk assessment, with the order to be issued within three working days of acknowledgement.

Refunds of excess cash ledger balances will also become fully automatic. Refund eligibility for input services under inverted duty structures will be expanded from November 1, 2026, while refunds linked to plant and machinery will be allowed from April 1, 2027, subject to the prescribed conditions.

Input Tax Credit Rules Eased

The Council has not yet finalised blanket protection for genuine buyers whose suppliers fail to meet their GST obligations. An officers' committee will examine the issue and submit its recommendations within three months.

At the same time, the Council approved input tax credit for several business expenses, including health and life insurance taken for employees, telecommunications towers and pipelines located outside factories, free samples and stock written off after expiry where destruction is legally required.

Relief For Small Businesses And E-Commerce Sellers

The Council approved in principle an optional compliance scheme for small taxpayers with turnover of up to INR 5 crore who supply only to consumers. Under the proposed system, eligible taxpayers would file returns annually while paying GST quarterly.

Rules for small sellers using e-commerce platforms have also been eased. Eligible sellers will be able to declare an e-commerce operator's warehouse in another state as their principal place of business there, subject to the prescribed risk threshold and system-based consent.

Fewer Checks For Goods In Transit

The GST Council has also tightened rules governing physical inspections of goods in transit. Vehicles can be stopped only on the basis of specific intelligence and with prior authorisation from an officer of at least the rank of Joint Commissioner.

Only the state from which the goods originate and the destination state will be authorised to inspect the consignment. States through which the vehicle is merely passing will not be allowed to stop it for routine checks.

Services Export Rules Eased

The Council approved changes that could benefit Indian services exporters and contract manufacturers. Indian companies providing services to foreign clients through their own overseas branches will be eligible for export benefits.

Work carried out in India on goods belonging to overseas customers, including testing, repair, certification, research and processing, will also qualify as an export of service even when the goods do not leave India.

No GST Rate Changes

Thursday's meeting did not announce any GST rate changes. The government said the focus will now be on addressing inconsistencies and ambiguities in the existing tax structure.

Rate-related matters will be taken up once a year at a dedicated meeting. The latest decisions therefore mark a shift in GST 2.0 from rate rationalisation to process rationalisation, with the government seeking to simplify compliance while using technology and data analytics to target genuine tax evasion.

(The above story first appeared on LatestLY on Oct 08, 2026 05:59 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).