GST Council clears removal of arrest powers, raises prosecution threshold to Rs 5 crore

New Delhi: The GST Council on Thursday approved removing tax officials’ arrest powers and raising the prosecution threshold fivefold to Rs 5 crore, in a sweeping overhaul of enforcement aimed at easing the compliance burden on businesses.

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The Council also backed faster, largely automated refunds and a reduction in the general penalty from Rs 25,000 to Rs 10,000. No GST rates were changed at its 57th meeting, Finance Minister Nirmala Sitharaman said.

The enforcement changes are set to take effect from April 1, 2027.

Under the approved framework, taxpayers who file late, make mistakes or fall behind on payments will face recovery proceedings, interest and proportionate penalties, without further punitive action for such lapses.

The prosecution threshold will rise from Rs 1 crore to Rs 5 crore, while no notices will be issued in cases involving amounts below Rs 10,000.

The Council, comprising Union and state finance ministers, also recommended scrapping mandatory minimum punishment, leaving courts to decide whether to impose a fine, imprisonment or both in each case. The lower general penalty will apply where no specific penalty is prescribed.

In a separate measure, the Council recommended extending refunds under the inverted duty structure to input services. This relief will apply to credit availed on or after November 1, 2026, Sitharaman said.

The government also intends to introduce faceless assessments for Central GST taxpayers registered in multiple states.

Sitharaman said the Council had addressed most anomalies linked to input tax credit and duty inversion, substantially resolving concerns over rates and processes.

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"So, I don't think there are many outstanding issues which are fundamental to ease of doing business or fundamental to anomalies and rates remain. So, yes, you can say GST next generation GST, 99 per cent issues have been addressed, rate or process," Sitharaman said.

Describing trust as the guiding principle behind the reforms, she said: "Business has to be trusted. Taxpayers have to be trusted. And businesses among themselves, with trust, if they do it, we shouldn't be too intrusive,"

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