GST Council recommends ending arrest powers and raising prosecution limit to ₹5 crore
Key points
- The GST Council recommended withdrawing arrest powers, raising the prosecution threshold to ₹5 crore and cutting the maximum general penalty to ₹10,000.
- The package covers registration, returns, refunds, ITC, notices and exports, so it touches almost every GST-registered business.
- Nothing changes until notifications, circulars or law amendments are issued; proposed dates include 1 November 2026, the April 2027 return and 1 April 2027.
The GST Council, at its 57th meeting in New Delhi on 8 October 2026, recommended process reforms covering registration, returns, refunds and adjudication, along with changes to arrest, prosecution and penalty provisions. The Ministry of Finance released them through the Press Information Bureau the same day. They are not yet law: the release says they will be given effect through circulars, notifications and law amendments, which alone will have the force of law.
What has changed
The main recommendations on enforcement and penalties are:
| Area | Recommendation |
|---|---|
| Arrest | Complete withdrawal of arrest powers by omitting section 69 of the CGST Act, 2017 |
| Prosecution | Monetary threshold raised from ₹1 crore to ₹5 crore |
| General penalty (section 125) | Maximum reduced from ₹25,000 to ₹10,000 |
| Show cause notices | No notice where the tax involved is below ₹10,000 (CGST + SGST + IGST + Cess) |
| Non-fraud cases | Reduced penalty of 5% if tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the adjudication order |
| Late fee | Waived for taxpayers with turnover up to ₹5 crore in the preceding financial year if a delayed section 39(1) return is filed by the end of the month in which it was due |
Refunds and input tax credit
- Full refund of excess balance in the electronic cash ledger to be sanctioned automatically by the system.
- Time limit for acknowledgement or deficiency memo cut from 15 days to 10 days, with deemed acknowledgement if no action is taken.
- 90% of refund claims for zero-rated supplies and inverted duty structure to be sanctioned provisionally by the system, based on its risk evaluation.
- Refund of accumulated ITC on input services in inverted duty cases, for ITC availed on or after 1 November 2026; refund of ITC on capital goods for zero-rated and inverted duty cases, spread over 60 months, for ITC availed on or after 1 April 2027.
- Section 17(5) restrictions to be removed for items including outdoor catering, health and life insurance, and free samples.
- Services supplied to a business’s own foreign offices or branches to be able to qualify as export of services.
Registration, returns and movement of goods
- Automatic acceptance of amendments to registration particulars, except the Principal Place of Business.
- A new mechanism to amend liability and ITC in returns, proposed from the return of April 2027, with a time-bound public consultation first.
- Automatic registration, subject to conditions, for small sellers of goods on e-commerce platforms in States where they have no physical presence, using the operator’s warehouse as their Principal Place of Business.
- E-invoicing extended to reverse charge purchases from unregistered persons and import of services, for aggregate annual turnover of ₹5 crore and above.
- Vehicles to be intercepted only on specific intelligence, with authorisation from an officer not below Joint Commissioner.
- In-principle approval of a concept note for an optional Annual Return Quarterly Payment scheme for businesses with turnover up to ₹5 crore making only B2C supplies.
Who is affected
Almost every GST-registered business is touched by at least one recommendation. Exporters of goods and services, businesses with an inverted duty structure, small taxpayers with turnover up to ₹5 crore, e-commerce sellers and businesses facing notices or appeals are most directly affected.
What this means for businesses
In practice, the package points to faster refunds and lower litigation risk, which should help the working capital of exporters and inverted-duty businesses. Startups that bill their own overseas group entities may in future be able to treat those services as exports. Current law applies until each change is notified, so filing positions should not change in advance. The release gives no commencement date for most items, including the arrest, prosecution and penalty changes. Businesses with pending notices or planned refund claims may want to discuss timing with their GST adviser.
Key dates
- 8 October 2026: GST Council recommendations announced.
- 1 November 2026: proposed start date for refund of accumulated ITC on input services in inverted duty cases.
- Return of April 2027: proposed start of the new mechanism for amending liability and ITC.
- 1 April 2027: proposed start date for refund of ITC on capital goods.
This update was written with AI from the official source above and automatically fact-checked against it before publishing. It is general information, not professional advice. Check the source, or talk to a Chartered Accountant, before acting on it.