The GST Council has recommended that the power to arrest under the Goods and Services Tax (GST) law be withdrawn completely. The decision was taken at the Council's 57th meeting, held in New Delhi on October 8, 2026 and chaired by Union Finance Minister Nirmala Sitharaman. The Council also recommended a higher money limit for prosecution, lower penalties, a minimum amount for tax notices and faster, system-driven refunds.
The Finance Ministry's release said the 56th meeting had dealt with tax rates, while this meeting was mainly about process reforms in registration, returns, refunds and adjudication. Chief Ministers of eight States and Union Territories, two Deputy Chief Ministers and State Finance Ministers took part.
Arrest and prosecution
- Arrest: the Council recommended omitting section 69 of the Central GST (CGST) Act, 2017, which gives officers the power to arrest.
- Prosecution: the money threshold for launching prosecution is to go up from Rs 1 crore to Rs 5 crore.
- Narrower offences: some clauses of section 132, which lists GST offences, are to be dropped or reworded. The clause on input tax credit (ITC) is to cover only fraudulent credit taken without receiving goods or services, or without an invoice or bill.
The release said the aim is a trust-based tax regime that still keeps a deterrent against fraud and evasion.
Notices and penalties
- No small notices: no show cause notice will be issued where the tax involved is below Rs 10,000, counting central, State and integrated GST and cess together. Pending notices and appeals below that amount will be decided as if the limit already applied.
- General penalty: the maximum general penalty under section 125 is to come down from Rs 25,000 to Rs 10,000.
- Non-fraud cases: the minimum penalty of Rs 10,000 is to be removed. A reduced penalty of 5% will apply if tax and interest are paid within 30 days of the order under section 73, or 60 days under section 74A.
- Appeals: where an order involves only a penalty and no tax demand, the pre-deposit for an appeal will be capped at Rs 40 crore (Rs 20 crore each under central and State GST).
- Blocked credit: a taxpayer whose credit ledger is blocked under rule 86A will be able to file an objection and get a personal hearing.
Goods in transit
The Council recommended changes to the e-way bill provisions in sections 68, 129 and 130:
- A vehicle carrying goods can be stopped only on specific intelligence and with the authorisation of an officer of at least Joint Commissioner rank.
- Detention or seizure can follow only in a State where the supplier or the recipient is located or registered. There will be no interception in transit States.
- Where no e-way bill has been generated, or the vehicle carries no document showing where the goods came from or are going, the goods can be inspected, detained or seized anywhere.
- Confiscation under section 130 will not apply to goods and vehicles in transit.
Refunds
Refunds are to move to automatic processing in two phases. In the first phase:
- A refund of excess balance in the electronic cash ledger will be sanctioned in full by the system, without an officer.
- For refunds on exports (zero-rated supplies) and inverted duty structure, 90% of the claim will be sanctioned provisionally by the system on the basis of risk evaluation.
- The time for an acknowledgement or deficiency memo falls from 15 days to 10 days, after which the application is treated as acknowledged.
The Council also recommended allowing refund of accumulated credit on input services in inverted duty cases, for credit availed on or after November 1, 2026. Refund of credit on capital goods, spread over 60 months, is proposed for credit availed on or after April 1, 2027.
Wider input tax credit
Section 17(5), which blocks credit on certain purchases, is to be amended. The release names outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry as items where the restriction is to be removed.
What it means for taxpayers
- Nothing changes immediately. The release says the recommendations will take effect only through circulars, notifications and amendments to the law, "which alone shall have the force of law".
- Removing section 69 and changing sections 73, 74, 74A, 125 and 132 needs amendments to the CGST Act by Parliament, and matching changes by the States.
- A new way of correcting liability and credit in returns is proposed from the return for April 2027, after public consultation.
Businesses with audit deadlines this month can also check the extended due dates for tax audit reports and audit-case income tax returns.
