The GST Council on Thursday approved a broad package of enforcement and procedural reforms aimed at making the tax system simpler and more business-friendly. The key decisions include removing the power of arrest under GST, raising the prosecution threshold from ₹1 crore to ₹5 crore and simplifying procedures related to registration, returns, refunds and input tax credit (ITC).
The decisions form the next phase of GST 2.0, with the government shifting its focus from tax-rate rationalisation to improving the day-to-day functioning of the GST system. No GST rate changes were announced at Thursday’s meeting.
Arrest Powers Under GST Removed
One of the most significant decisions was the removal of arrest provisions under GST. The government said enforcement will increasingly rely on data, invoice matching and analytics to identify tax evasion rather than criminal action in routine cases.
The Council also increased the prosecution threshold five-fold, from ₹1 crore to ₹5 crore. The minimum punishment provision has been removed, allowing courts to determine the appropriate penalty, imprisonment or both based on individual cases.
The move is expected to address concerns among businesses over the criminalisation of compliance-related disputes.
Faster and Simpler GST Compliance
The Council approved several measures to reduce paperwork and make GST registration and return filing easier.
Low-risk taxpayers can already obtain registration within three working days without officer intervention, and the government said around 61% of registrations are currently processed through this automated system.
The registration application will also be redesigned so that applicants see only the fields relevant to them, along with clearer explanations of required documents.
Businesses will be allowed to correct certain errors in previous returns, including mistakes involving a buyer’s GST registration number. The Invoice Management System will also play a greater role in managing input tax credit.
Refund Process to Become Faster
The Council has decided to reduce the time for acknowledging GST refund claims from 15 days to 10 days.
If no acknowledgement or deficiency memo is issued within 10 days, the refund application will be treated as acknowledged. Under a risk-based system, 90% of the eligible claim will be sanctioned within three working days of acknowledgement.
Refunds of excess cash-ledger balances will also become fully automatic.
Further changes will expand refund eligibility for input services under inverted duty structures from November 1, 2026, while refunds linked to plant and machinery will be allowed from April 1, 2027, subject to the prescribed conditions.
Review of ITC Protection for Genuine Buyers
The Council has not yet approved blanket protection for genuine buyers when suppliers fail to meet their GST obligations.
Instead, a committee of officers will examine whether buyers who possess valid invoices, have received the goods and have paid their suppliers in full can be protected from adverse consequences.
The committee has been given three months to submit its recommendations.
The Council also approved ITC for certain business expenses, including employee health and life insurance, specified telecommunications infrastructure, free samples and stock written off after expiry where destruction is legally required.
Relief for Small Businesses and E-Commerce Sellers
The Council has approved in principle an optional compliance system for small taxpayers with annual turnover of up to ₹5 crore who supply exclusively to consumers.
Under the proposed system, taxpayers would file returns annually while paying GST quarterly. Detailed rules are expected to be considered at a subsequent Council meeting.
Rules for small sellers operating through e-commerce platforms have also been eased, including provisions relating to declaring an e-commerce operator’s warehouse in another state as the seller’s principal place of business.
Fewer Checks for Goods in Transit
The Council has also changed the inspection framework for goods being transported between states.
Vehicles can be stopped only when there is specific intelligence and prior authorisation from an officer of at least Joint Commissioner rank.
Inspections will generally be limited to the state of origin and the destination state, reducing the possibility of repeated checks while goods are passing through multiple states.
Boost for Services Exports
The reforms also include measures aimed at benefiting India’s services and manufacturing sectors.
Certain services provided by Indian companies to overseas clients through their own foreign branches will receive export treatment. Similarly, specified work carried out in India on goods belonging to overseas customers—including testing, repair, certification, research and processing—can qualify as exports of services even when the goods remain in India.
The changes could benefit sectors such as technology, analytics, engineering, electronics and contract manufacturing.
No GST Rate Changes
Unlike the previous major GST reform exercise, Thursday’s meeting did not announce any changes to GST rates.
The government said the focus will now be on addressing procedural difficulties, removing ambiguities and improving the overall functioning of the tax system. Rate-related matters are expected to be considered separately.
The latest measures mark a shift towards “process rationalisation” under GST 2.0, with greater emphasis on easier compliance, faster refunds, smoother credit mechanisms and data-driven enforcement against genuine tax evasion.