GST big relief: Council removes arrest powers, raises prosecution limit to Rs 5 crore

PTC Web Desk: The GST Council on Thursday cleared a major set of changes to make life easier for businesses. The biggest decisions: arrest powers under GST have been taken away and the limit for prosecution has gone up five times, from Rs 1 crore to Rs 5 crore. This is the second phase of GST 2.0.

The focus this time was on how the system works day to day, not on tax rates. The government confirmed that no GST rates were changed and said rate-related issues will now be discussed only once a year, at a meeting meant just for that.

The meeting comes about a year after the big rate rationalisation. According to the government, monthly taxable supply has grown 25.8% to Rs 50.58 lakh crore from Rs 40.19 lakh crore and GST revenue is up 11% so far in FY27.

No arrest powers, higher prosecution limit

The Council has removed the power of arrest under GST. The government says the aim is to catch tax evasion through data rather than rely on the fear of criminal action. Since the system can now match seller and buyer invoices, it can spot fake credit near the point where it is created.

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Other changes on enforcement:

The prosecution threshold rises from Rs 1 crore to Rs 5 crore.

The minimum punishment has been scrapped. Courts will decide whether to impose a fine, jail term or both.

The general penalty is cut from Rs 25,000 to Rs 10,000.

Businesses had been asking for relief from the criminalisation of routine GST disputes and these steps address that concern.

Simpler registration and return filing

Registration is already granted within three working days, without any officer involved, for low-risk applicants and for those whose output tax on supplies to registered persons is up to Rs 2.5 lakh a month. About 61% of registrations now come through this route.

The application form will be redesigned so applicants see only the fields that apply to them, along with an explanation of why each document is needed.

On returns, businesses will be allowed to correct errors from earlier periods, such as a wrongly entered buyer registration number. The Invoice Management System will also be used for settling credit, and whatever a buyer accepts will flow into the return.

Faster GST refunds

The changes could help exporters and businesses facing inverted duty structures. The time to acknowledge a refund claim drops from 15 days to 10. If the department issues neither an acknowledgement nor a deficiency memo in that time, the claim is treated as acknowledged.

Based on risk assessment, 90% of the claim will be sanctioned, with the order issued within three working days of acknowledgement (earlier it was seven).

Refunds of excess balance in the cash ledger will become fully automatic. From November 1, 2026, refunds will cover input services in inverted duty cases. From April 1, 2027, refunds linked to plant and machinery will be allowed, with the credit spread over the asset's working life. The government says sectors like pharma and FMCG could manage their working capital better as a result.

Input tax credit: Relief for genuine buyers still pending

The Council has not yet decided on blanket protection for genuine buyers whose suppliers fail to pay GST. A committee of officers will study how to protect a buyer who holds a proper invoice, received the goods and paid the supplier in full. It has three months to report, after which the matter goes to the next Council meeting.

Meanwhile, ITC has been approved for several routine business expenses:

Health and life insurance for employees

Telecom towers and pipelines outside factories

Free samples

Stock written off after expiry, where the law requires destruction

Relief for small businesses and e-commerce sellers

The Council has approved in principle an optional scheme for small taxpayers with turnover up to Rs 5 crore who sell only to consumers. They would file returns once a year but pay tax every quarter. The full framework will come up at the next meeting.

Small e-commerce sellers also get an easier process. A seller can declare an e-commerce operator's warehouse in another state as its principal place of business there, with the operator's consent given automatically through the system. This is open to sellers below the risk threshold; those above it will move to regular registration.

Fewer checks on goods in transit

A vehicle can now be stopped only on specific intelligence and only with prior approval from an officer of Joint Commissioner rank or above. Only the origin state and the destination state can inspect a consignment. States along the route cannot stop it.

For example, a consignment passing through five states will now be checked only at the start and the end, not in every state.

Boost for services exports and manufacturing

An Indian company serving a foreign client through its own overseas branch will get export benefits. Work done in India on a foreign client's goods, such as testing, repair, certification, research or processing, will count as export of service even if the goods never leave the country.

This could help analytics, design, engineering and contract manufacturing. Karthik Mani of BDO India had said before the meeting that such treatment could particularly benefit semiconductors and electronics.

What states said

Goa Chief Minister Pramod Sawant welcomed the reforms and thanked the Finance Minister, saying they solve problems people earlier faced, as reported by ANI.

Delhi Chief Minister Rekha Gupta said the Council focused on simplifying GST and improving how it is implemented and called the results "very positive."

West Bengal Finance Minister Swapan Dasgupta said GST is vital for the state's revenue and that the ease of doing business reforms would help in the long run. He added that compliance has often been a challenge in West Bengal, but awareness is now growing.

No rate changes this time

Unlike last year, no GST rates were touched. The government says the rate structure is now settled and the Council will concentrate on clearing up remaining inconsistencies. With these decisions, GST 2.0 moves from changing rates to simplifying processes, from registration and filing to refunds, credit and enforcement.