GST Council scraps arrest powers of tax officers, raises prosecution threshold to ₹5 crore

The GST Council on Thursday approved a series of process and compliance reforms, including scrapping the arrest powers of tax officers and raising the threshold for prosecution to ₹5 crore from ₹1 crore, Finance Minister Nirmala Sitharaman said after the Council’s 57th meeting.

The Council also decided against any changes in GST rates, with Sitharaman saying that the “rate structure is settled” and rate-related matters would be taken up once a year.

Arrest powers scrapped, prosecution threshold raised

Under the reforms, GST tax officers will no longer have arrest powers. The threshold for prosecution has been raised five-fold to ₹5 crore from ₹1 crore.

The Council also approved a reduction in the general penalty from ₹25,000 to ₹10,000.

The measures form part of what the government described as “Next-Gen GST Process Reforms”, aimed at simplifying compliance and reducing litigation for taxpayers.

The Council also approved measures to widen opportunities for service exporters. Under the reforms, an Indian firm serving a foreign client through its own overseas branch will be eligible for export benefits. Testing, repair, certification, research and processing carried out in India on goods belonging to foreign clients will also qualify as exports, even when the goods remain in India. The reforms further provide that recognition of export payments will follow RBI rules, while service exporters will be able to recover tax paid on inputs faster.

Faster refunds, easier registration

The Council reduced the time limit for acknowledging GST refund claims from 15 days to 10 days, Sitharaman said.

Under the risk-based system, 90% of provisional refunds in cases involving zero-rated supplies and inverted duty structure will be sanctioned automatically, according to the CBIC.

Karthik Mani, partner & leader – Indirect Tax: South, Tax & Regulatory Advisory at BDO India, said, “Allowing refunds on input services under the inverted duty structure is a significant reform for sectors such as FMCG, pharmaceuticals and jewellery. Accumulated input tax credit on services had become a serious drag on working capital for these industries. Permitting refunds on credit availed from November 1, 2026 will ease that pressure and give these sectors a meaningful boost.”

The Council has also approved auto-generated acknowledgement of refund applications and automatic refund of excess balance lying in the electronic cash ledger.

Sitharaman said the faster refund process would help improve the working capital position of businesses, particularly small businesses.

On registration, the Council recommended a more streamlined process with greater certainty over documentary requirements and system-based guidance. Taxpayers will also be allowed to make self-amendments to registration details, subject to specified conditions.

The cancellation of registration will also be made easier, with automatic acceptance of cancellation applications in eligible cases.

Relief for small e-commerce sellers

The Council also approved a simplified GST registration mechanism for small taxpayers supplying through e-commerce platforms.

The reform is aimed at making it easier for small businesses to sell through online platforms without facing the existing registration-related hurdles.

The Council recommended common standards for GST notices and proceedings and decided that no demand notice would be issued where the tax amount is ₹10,000 or below.

Pending notices below the threshold will also be withdrawn.

The CBIC said the reforms also provide for a 5% penalty where tax along with interest is paid within 30 days under Section 73, or within 60 days under Section 74A, in non-fraud cases.

The Council also recommended measures to prevent arbitrary interception of goods during transit, with interceptions requiring specified reasons and authorisation at the Joint Commissioner level or above.

The Council also approved several measures to simplify GST return filing and reduce mismatches between returns. The CBIC said GSTR-1/1A/IFF will be enhanced to enable correct recording of tax liability in GSTR-3B, while an alternative mechanism will be provided to amend liability and input tax credit in GST returns.

The Council has also given in-principle approval to a simplified return-filing mechanism on an annual basis, with quarterly payment of tax, for small taxpayers making B2C supplies.

On rates, Sitharaman said, “No rates have been changed at this meeting; rate matters will be taken up once a year.” The Council’s focus at Thursday’s meeting was therefore on process reforms, compliance and dispute reduction rather than another round of rate changes.