No More Arrests Under GST? Centre, States Weigh Decriminalisation Ahead of Council Meet

The GST Council is set to discuss a proposal to decriminalise offences and remove arrest powers under the Goods and Services Tax (GST) regime at its 57th meeting on October 7, more than nine years after the indirect tax system was rolled out in July 2017, according to a report by The Indian Express citing two persons aware of the development. The move is aimed at lifting investor sentiment and easing worries about overreach by tax authorities, and it follows eight to nine months of consultations between the Centre and the states, including involvement at the top levels of the Union government. The arrest provisions have increasingly been seen as a major hurdle for traders and businesses.

If the Council reaches a decision, the Centre is expected to bring an amendment in the Winter Session of Parliament to remove the arrest provisions from GST laws.

Why Is The Change Being Considered?

The proposal is seen as urgent because several high-ranking functionaries were arrested under GST provisions in recent times, which industry leaders called an overreach. Industry experts say arrests had turned into a harassment tool, particularly in the services sector, including banking and insurance, and were often used as leverage to push businesses into paying penalties to avoid long legal battles. An official said that removing arrest powers would be a taxpayer-friendly step that clears away perceptions of fear and harassment. UPI Charges or MDR Will Attract 18% GST From October 15: Report.

What About Genuine Tax Fraud Cases?

Authorities will still prosecute intentional fraud and deceit under GST. A source said arrests in such cases would be made under the Bharatiya Nyaya Sanhita, the country's criminal code, instead of the GST law. Another source said the final call would come only after the Council discusses the matter, and legislative changes would follow. GST Collection in India Hits Record INR 2.42 Lakh Crore in April 2026, Registers 8.7% YoY Growth.

Typical GST frauds involve fake identities or mule accounts used to claim input tax credit, or fake bills without any actual supply of goods. Some suppliers undervalue final goods and show raw material purchases at lower rates, while others supply taxable goods and services without paying GST to the central and state governments. Between 2021-22 and 2024-25, central GST formations made 887 arrests across 72,393 cases of GST offences. Arrests by state authorities are in addition to this figure.

How Do Arrest Powers Work Under GST Now?

Under the Central GST Act, non-compliance can attract a penalty under Section 122, interest under Section 50, and recovery of tax. Cases involving deliberate tax evasion can lead to arrest and prosecution under the Act's criminal provisions.

Section 69 allows arrest only after approval from the Commissioner, who must have 'reasons to believe' that a person committed an offence such as issuing fake invoices or fraudulently availing input tax credit. Those reasons must rest on credible material and evidence, and mere suspicion is not enough. All reasons have to be recorded in writing.

The power was also meant to be restricted to combined evasion of INR 2 crore or more, and to severe offences such as:

• Supplies made without any invoice
• Invoices issued without any supply
• Tax collected but not paid to the government
• Input tax credit taken without receiving goods or services

The Central Board of Indirect Taxes and Customs (CBIC) has defended the provision in an official document, stating, "To some, these may appear very harsh, but these are necessary for efficient tax administration and also act as a deterrent and instill a sense of discipline."

Concerns Were Raised Even Before GST Rollout

The worry over arrest powers is not new. In the fifth GST Council meeting in December 2016, the Maharashtra Additional Chief Secretary observed that arrest and confiscation powers did not fit the idea of ease of doing business, according to the minutes. A West Bengal minister pointed out that the earlier Value Added Tax (VAT) law had no arrest power and an FIR could only be lodged with the police. If arrest powers go, GST would in effect resemble the pre-2017 VAT regime, which had no arrest provisions.

Direct Tax Side Has Already Moved

The government has also been decriminalising offences on the direct tax side. In September, the Central Board of Direct Taxes (CBDT) removed arrest and detention provisions from the tax recovery rules with retrospective effect from April 1, 2026, barring tax officials from arresting people over tax default. A notification dated September 17 brought in the Income-Tax (Fourth Amendment) Rules, 2026, which also removes 'arrest and detention' from the tax recovery rules in case of the defaulter's death.

(The above story first appeared on LatestLY on Oct 04, 2026 11:06 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).