GST Council Scraps Arrest Powers, Lifts Prosecution Threshold to Rs 5 Crore and Speeds Up Refunds

India's indirect tax regime took a decisive step away from criminal enforcement on Thursday. At its 57th meeting in New Delhi, the GST Council chaired by Finance Minister Nirmala Sitharaman recommended removing the power of GST officers to arrest taxpayers and raising the threshold for prosecution fivefold, from Rs 1 crore to Rs 5 crore.

The package, announced by Sitharaman at a press conference after the meeting, did not include any changes to GST rates. Instead, it focused almost entirely on how the tax is enforced and how quickly businesses get their money back.

From handcuffs to recovery notices

Under the changes, cases involving amounts below Rs 5 crore will no longer lead to prosecution. The Council also scrapped minimum punishments for GST offences, leaving any fine or jail term to the courts to decide case by case. The general penalty, which applies when no specific penalty is set out in the law, comes down from Rs 25,000 to Rs 10,000.

For routine lapses such as late returns, errors or delayed payments, taxpayers will face recovery of the tax, interest and a proportionate penalty, and nothing beyond that. The Council also decided that no show-cause notice will be issued where the amount at stake is below Rs 10,000.

Businesses and tax practitioners have long argued that arrest powers were used too freely, especially in input tax credit disputes, and that the threat of arrest pushed companies into paying contested demands. The proposal had been discussed before the meeting, which was originally planned for September but was rescheduled, and states were expected to back it. These are recommendations of the Council; changes to the arrest and prosecution provisions will need amendments to the GST law before they take effect.

Refunds on a shorter clock

The second big theme was cash flow. The time allowed for acknowledging a refund claim has been cut from 15 days to 10. If tax authorities neither acknowledge the claim nor flag a deficiency within that window, it will be treated as acknowledged. Based on a risk assessment, the system will then sanction 90% of the claim, with the order issued within three working days of acknowledgement instead of seven. Refunds of surplus balances in the electronic cash ledger will become fully automatic, with no officer involved.

For exporters and businesses with an inverted duty structure, who often have large sums stuck in refund queues, faster processing directly frees up working capital.

Smaller taxpayers and rate-change discipline

Automated GST registration within three working days for low-risk applicants will continue, and will now also cover applicants whose output tax on supplies to registered buyers does not exceed Rs 2.5 lakh a month. About 61% of registrations already go through the automated route.

The Council also approved in principle an optional scheme for businesses with turnover up to Rs 5 crore that sell only to consumers. They would pay tax quarterly but file returns just once a year. The detailed framework will come up at the next meeting.

Sitharaman also said the Council will consider rate changes only once a year, with any revisions taking effect from April 1. That should give businesses more predictability on pricing and invoicing than the frequent mid-year tweaks of the past.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.