New Delhi: GST Council is likely to consider this week a sweeping rewrite of GST enforcement that would take arrest powers away from tax officials and require a court order for any arrest, people familiar with the proposal said, in what could become the next major pillar of the government’s Next-Generation GST reforms.
The GST Council, the apex decision-making body on the Goods and Services Tax (GST), is also likely to consider, at its October 7 meeting, a package of prosecution-related reforms, including raising the threshold for launching criminal proceedings for offences to Rs 5 crore.
The proposals also seek to narrow the scope of prosecution provisions so they do not apply to routine disputes over classification, valuation or Input Tax Credit, where businesses and tax authorities may hold differing interpretations of the same transaction, they said.
The proposed enforcement changes are part of the government’s Next-Generation GST reform agenda, following the major rate rationalisation implemented in September 2025. That overhaul simplified the GST structure around a 5 per cent merit rate and an 18 per cent standard rate, with a 40 per cent rate for select luxury and demerit goods.
The next phase is expected to focus on simplifying administration, reducing compliance costs and making enforcement more proportionate.
A wider package under consideration includes easier registration, faster refunds, simpler input-tax-credit procedures and changes to show-cause notices and penalties, the people said.
At the centre of the enforcement proposal is Section 69 of the Central GST Act, which allows the Commissioner, where statutory conditions are met, and there are reasons to believe specified offences have been committed, to authorise an officer to arrest a person. The proposed changes would remove that power from tax officials. Any arrest would instead require judicial authorisation, they noted.
They said the proposed changes would not remove the government’s ability to recover taxes or impose financial penalties. Compounding would allow an offence to be settled, subject to payment of the prescribed tax, interest and penalty. Taxpayers found to have short-paid tax or wrongly claimed input tax credit would continue to face recovery proceedings and other statutory consequences.
Serious cases involving deliberate evasion or fraud could continue to be prosecuted through the courts, they said.
The move would also fit into the government’s broader effort to decriminalise economic and regulatory offences. The Jan Vishwas (Amendment of Provisions) Act, 2026, sought to decriminalise a range of provisions across central laws, while changes to income-tax recovery rules have also reduced the role of arrest and detention.
The GST Council has previously considered decriminalising minor offences, raising prosecution thresholds and making compounding provisions more accessible.
For businesses, the proposed change would reduce the possibility of a tax dispute escalating into arrest before the underlying liability is finally determined, while leaving the government’s revenue-recovery powers intact.
For the tax administration, it would put greater emphasis on data-driven scrutiny, risk-based investigations and financial recovery rather than arrest as an enforcement tool.
Explaining the impact of the proposed changes, once approved by the Council, sources said that for offences like late filing of returns, classification disputes and delay in tax payment due to cash position, a taxpayer can now avoid arrest by paying tax, interest, and a proportionate penalty.
Currently, GST officers have the power to arrest, after prior authorisation from a Commissioner-level officer, in cases of major offences where tax evasion, fraudulent input tax credit (ITC), or wrongful refunds exceed Rs 1 crore.
AMRG Global Managing Partner Rajat Mohan said the proposal marks a significant shift in India’s indirect-tax enforcement philosophy – from arrest-led deterrence to technology-led detection and predominantly civil-liability-based enforcement.
“With arrest removed and prosecution reserved for more serious cases, the focus is increasingly on using GSTN’s data capabilities to detect fraud rather than relying on coercive powers,” Mohan said.
Sources said the arrest provision under GST law was not serving its intended purpose, as businesses perceived it as a tool used by GST officers to harass them. Moreover, individuals arrested by GST officers eventually secured bail in most cases. Actual imprisonment, however, can follow only after prosecution and conviction, with the offence established in accordance with law.
The GST Council, in its October 7 meeting, is likely to discuss decriminalisation and consequent changes in the law to remove the power to arrest a person by GST officers, and instead have tax officers focus on recovering tax, levy interest and penalty.
“The threshold for prosecution is proposed to be raised from Rs 1 crore to Rs 5 crore. That would reserve the criminal process for cases whose scale warrants it,” a source said, adding that GST officers will now focus on settling disputes by collecting tax and let law enforcement agencies handle launching prosecution.
Building further on last year’s GST 2.0 rate rationalisation, the process reform proposals before the GST Council will directly affect traders, businesses and their families. The reform would also show the trust the government has in businesses, sources said.
The proposals before the Council include softening 24 offences listed under the prosecution provision of the GST law, removing nine offences entirely, while retaining 11 as they are.
Besides, the provision on minimum sentence is proposed to be removed, so a court is no longer bound to impose a term of imprisonment. A fine is available as an option in every case, while the maximum sentence in the middle band has come down from 3 years to 2.
The Council would also consider the proposal to waive late fees for small taxpayers and rationalise penalties.
When the GST law was implemented on July 1, 2017, the power of arrest was one of the few tools available against fake invoicing and GST evasion. It was difficult to match invoice by invoice from the returns filed and detect fraud, and so this arrest provision was introduced as a deterrent.
However, today the invoice matching system links what a seller reports with what a buyer claims. The mapping of the input and output ledgers with the summary return completes that link. Now, fake credit can be identified close to where it arises, and it can be stopped before it moves down the chain. The safeguard that arrest was meant to provide is now provided by the system itself.
Sources said the arrest provisions are hence proposed to be removed, and instead tax disputes are proposed to be resolved through civil consequences, namely tax recovery, interest and penalty.
GST Council may clear sweeping compliance reforms; e-commerce sellers, genuine biz to get relief
The GST Council is likely to consider sweeping process reforms on Wednesday to make tax compliance easier for businesses, including allowing small e-commerce sellers to use platform warehouses for GST registration, protecting genuine buyers’ input tax credit and reducing low-value litigation, sources said.
The proposals, part of the GST 2.0 process reforms, seek to simplify registration and return filing, make goods movement more predictable and reduce disputes between taxpayers and the tax department.
One of the proposals seeks to allow small sellers using e-commerce platforms to treat the platform’s warehouse as their registered place of business in states where they do not have their own premises. A seller would need a genuine presence in one state, where physical verification and Aadhaar authentication would be completed, and registrations in other states could be obtained with the consent of the e-commerce platform without further tax-officer involvement.
The move could enable around 9.5 lakh small sellers to access the national market without establishing physical offices in every state where their goods are stored, while creating greater tax parity across competing e-commerce business models, sources said.
The Council may also consider a proposal to protect input tax credit of genuine buyers who have valid invoices even if an upstream supplier defaults on tax payment. The recovery action in such cases would instead be directed at the defaulting seller.
The proposal seeks to address a major source of GST litigation and business uncertainty, particularly for companies purchasing from small and new vendors.
FEWER LOW-VALUE DISPUTES
To reduce litigation and administrative burden, the Council is likely to consider a proposal to bar issuance of GST notices where the tax demand is below Rs 10,000.
Such cases account for about 20 per cent of all cases by number but involve a negligible amount of tax, according to the proposal. The threshold could also apply to pending cases, whether at the adjudication or appeal stage.
For demands above Rs 10,000, tax officers would first have to send an intimation to the taxpayer and provide an opportunity to respond before issuing a formal notice.
The Council is also likely to consider common standards for raising and deciding tax demands, including detailed guidelines on drafting and serving notices, distinguishing fraud from ordinary short-payment, conducting hearings and issuing reasoned orders.
Under the proposal, when a taxpayer chooses to settle a dispute rather than litigate, the amount paid would be termed a “charge” rather than a penalty.
EASIER REGISTRATION & RETURNS
The GST registration process is also being redesigned so applications can be completed correctly the first time.
The proposed system would provide guidance at each stage, show applicants only the sections relevant to them and provide a tailored list of documents required for uploading. Details from an existing registration in another state could be carried over, while businesses applying for registrations in multiple states could complete them together.
The system would also determine the appropriate tax office based on the location of the business.
The Council is likely to consider a unified GST registration documentation process, simpler annual return filing, and a quarterly tax payment option for MSMEs that supply only to consumers.
SMARTER LOGISTICS CHECKS
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Another proposal seeks to introduce intelligence-led logistics and transit checks, under which vehicles carrying goods could be stopped only on the basis of specific prior authorisation from a senior officer and generally only by the state of origin.
Exceptions would apply where documents are missing, or tax is payable by the buyer.
The proposed system is aimed at reducing repeated stoppages of vehicles crossing state borders, cutting transit times and freight costs and making movement of domestic and export cargo more predictable.
The Council may also consider a proposal for a single 5 per cent GST rate without input tax credit for delivery of goods ordered through e-commerce platforms.
Other proposals include removing ambiguity over the export status of services supplied through an Indian company’s overseas branch and withdrawing the IGST exemption on imports of gold, silver and platinum by specified banks and nominated agencies.
The Centre and state GST officers’ working group has met more than eight times over the past year, and the GST National Coordination Committee has met three times to firm up the proposed process reforms, sources said.
“The process reforms proposed under GST 2.0 take forward the trust that the government reposes in taxpayers and make life easier for businesses and traders by reducing compliance,” a source said.
AMRG Global Managing Partner Rajat Mohan said the proposals address several structural concerns that businesses and tax professionals have highlighted since the introduction of GST.
“After years of experience with the law, the focus is now shifting from revenue protection through restrictions and procedural controls towards a more mature system built on seamless credit, working-capital efficiency, taxpayer certainty and technology-led enforcement,” Mohan added.
