Arrest powers scrapped; prosecution bar raised
New Delhi, Oct 8: The GST Council on Thursday approved a wide-ranging package of taxpayer-friendly reforms aimed at easing compliance, speeding up refunds, expanding input tax credit and reducing litigation, while retaining the existing GST rate structure.
The decisions were taken at the 57th meeting of the GST Council chaired by Union Finance Minister Nirmala Sitharaman, with the Council shifting its focus from rate rationalisation to simplifying the day-to-day functioning of the indirect tax system.
“No rate changes have been made. The rate structure is settled,” Sitharaman said at a press conference after the meeting, adding that the focus this year was on process-related reforms and improving the ease of doing business.
In one of the major decisions, the Council proposed to remove the arrest powers of GST officers and raised the threshold for launching prosecution from Rs 1 crore to Rs 5 crore.
The minimum punishment prescribed for GST offences has also been removed, leaving courts to decide whether a fine, imprisonment or both should be imposed. The general penalty in cases where no specific penalty is prescribed has been reduced to Rs 10,000 from Rs 25,000.
The Council also proposed common standards for GST notices and proceedings. No notices will be issued for monetary amounts of Rs 10,000 or below, while pending notices below the threshold will also be withdrawn.
The government has also proposed greater automation of GST registration and amendment procedures. Low-risk applications are expected to receive automatic approval within three working days.
Around 61 per cent of GST registrations are already being approved within three working days without officer intervention, while nearly 66 per cent of amendment applications are proposed to be processed automatically.
Registrations suspended because of procedural lapses could also be restored automatically once the issue is corrected, while the process for cancellation of registrations after business closure is proposed to be simplified.
The Council also approved measures to make GST refunds faster. The timeline for acknowledging refund applications has been reduced from 15 days to 10 days, while around 90 per cent of eligible refund claims are expected to be sanctioned through a system-based risk assessment.
Refunds from the cash ledger will also be made fully automatic, reducing manual intervention and helping improve liquidity for businesses and exporters.
The Council expanded input tax credit relief to cover GST paid on employee health and life insurance in eligible cases. Relief has also been extended to telecom towers and pipelines located outside factory premises, as well as free samples and certain expired stocks that have to be destroyed.
At the same time, a Committee of Officers will examine safeguards for genuine buyers who could lose ITC because of a supplier’s tax default or fraud.
The committee will examine cases where buyers possess valid invoices, have received the goods and have made full payment to suppliers, and is expected to submit its report within three months.
The Council also approved changes relating to refunds under the inverted duty structure. Refund of input services under the inverted duty structure will be allowed from November 1, 2026.
A similar facility for plant and machinery has been proposed from April 1, 2027, with the adjustment to be spread over 60 months.
In another major compliance reform, the Council approved in principle an optional scheme that would allow small businesses with annual turnover of up to Rs 5 crore to file a single GST return every year while continuing to pay tax quarterly.
The proposal is expected to benefit more than 16 lakh small businesses that sell exclusively to consumers, including neighbourhood retail shops, salons, restaurants and small eateries.
Government estimates show that out of 1.05 crore active GST taxpayers, around 16.85 lakh report supplies only to consumers. Nearly 16.66 lakh, or 99 per cent of these taxpayers, have annual turnover below Rs 5 crore.
Despite their large numbers, these businesses account for less than 1 per cent of the overall GST liability. Since their customers are individual consumers who do not claim input tax credit, the returns filed by such sellers have limited impact on the wider GST credit chain.
The proposed simplified compliance scheme is therefore intended to reduce the filing burden on this segment. Detailed operational provisions and the legislative amendments required to implement it will be placed before the Council at its next meeting, with the reforms proposed to take effect from April 1, 2027.
At present, businesses with turnover of up to Rs 5 crore can opt for quarterly return filing, although they continue to pay taxes monthly. The new proposal would further reduce their compliance burden by requiring only one return annually while retaining quarterly tax payments.
The Council also decided that GST rate changes would henceforth be considered once a year, a move aimed at providing greater stability and predictability to businesses.
The 57th meeting, which was rescheduled from Wednesday due to unavoidable circumstances, was attended by representatives of the Centre and state governments, including Chief Ministers of Delhi, Goa, Haryana, Jammu and Kashmir, Karnataka, Kerala, Maharashtra and Meghalaya, besides Deputy Chief Ministers of Manipur and Telangana, state Finance Ministers and senior officials.
The Secretary of the Department of Revenue, Chairman and Members of the Central Board of Indirect Taxes and Customs and senior Finance Ministry officials also participated in the meeting.
