New Delhi: The GST Council is likely to consider a major overhaul of tax enforcement this week, including removing tax officials’ power to authorise arrests and raising the threshold for criminal prosecution to Rs 5 crore, people familiar with the proposals said.
The package, expected to come up at the Council’s October 7 meeting, would require judicial authorisation for any arrest. It also seeks to keep routine disputes over classification, valuation and input tax credit (ITC) outside the scope of prosecution where businesses and authorities differ over the interpretation of a transaction.
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The proposals form part of the government’s next phase of GST reforms, aimed at simplifying administration, reducing compliance costs and making enforcement more proportionate.
At the centre of the proposed changes is Section 69 of the Central GST Act, which empowers a Commissioner, subject to statutory conditions, to authorise an arrest for specified offences. The proposal would shift that authority to the courts, the people said.
Tax recovery, interest and financial penalties would remain in place. Serious cases involving deliberate evasion or fraud could still face criminal prosecution, while eligible offences could be settled through compounding under the prescribed conditions.
"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.
The package also seeks to ease several prosecution provisions, remove certain offences and give courts greater discretion in sentencing. Proposals include removing mandatory minimum imprisonment, making fines available as an alternative and reducing the maximum prison term in one category from three years to two.
The Council is also likely to consider waiving late fees for small taxpayers, rationalising penalties and simplifying registration, refunds and ITC procedures. Changes to show-cause notices are also under consideration.
For businesses, the proposed shift could reduce the risk of a tax dispute escalating into arrest before the underlying liability is finally determined. For tax authorities, it would place greater emphasis on detecting fraud, establishing liability and recovering dues.
AMRG Global Managing Partner Rajat Mohan said the proposal signalled a shift from arrest-led deterrence towards technology-driven detection and predominantly civil 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.
People familiar with the proposals said improved invoice matching and return scrutiny had strengthened the administration’s ability to identify suspicious ITC claims, reducing the need to rely on arrest as a deterrent.
Businesses have also raised concerns about the use of arrest powers in tax disputes, the sources said.
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The enforcement package would build on the September 2025 rate rationalisation, which reorganised GST around a 5 percent merit rate and an 18 percent standard rate, with a 40 percent rate for select luxury and demerit goods.
The proposals remain under consideration. Any changes to statutory arrest and prosecution powers would require amendments to the law following the Council’s recommendations.
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