GST Council may scrap arrest powers and raise prosecution bar to Rs 5 crore

The GST Council is preparing to strip tax officials of their power to arrest taxpayers, shifting that authority strictly to the courts as part of a sweeping "GST 2.0" reform package.

The proposed changes, which will be considered by the council headed by Union Finance Minister Nirmala Sitharaman, represent the most significant overhaul of the indirect tax regime's enforcement rules since its launch in 2017.

Under the plan, Section 69 of the Central GST Act would be amended to remove the power of GST commissioners to authorise arrests. Instead, tax officials would have to secure a court order before putting anyone in custody. At the same time, the threshold for launching criminal prosecution is set to rise from Rs 1 crore to Rs 5 crore, effectively shielding smaller businesses from criminal proceedings.

What the decriminalisation rules look like

The changes are designed to draw a clear line between genuine business disputes and deliberate fraud. Under the proposals, routine disagreements over tax classification, valuation, and input tax credit (ITC) eligibility will be kept entirely outside the criminal process.

Of the 24 offences currently covered by the law, nine are slated to be decriminalised entirely. Courts will also gain greater flexibility; the proposals suggest removing mandatory minimum sentences, allowing judges to impose fines instead, and cutting the maximum sentence in the middle category of offences from three years to two.

Tax experts say the shift is a natural evolution of the system, which now relies heavily on technology.

"With arrest removed and prosecution reserved for more serious cases, the focus is increasingly on using GSTN's data capabilities to detect fraud rather than relying on coercive powers," Rajat Mohan, managing partner at AMRG Global, said.

Speeding up registrations and refunds

The reform package, put together after multiple rounds of discussions between central and state officials, also targets bureaucratic red tape.

Under the new rules, registration applications will be simplified, with the aim of clearing 60 per cent of them within three days. The system will also introduce a "deemed acknowledgement" rule for refunds: if the tax department does not respond to an exporter’s claim within 10 days, it will be automatically approved, allowing businesses to access up to 90 per cent of their money quickly.

In another major win for manufacturers, the council is considering allowing GST refunds on plant and machinery. Currently, this credit can remain blocked for years, hurting cash-intensive projects like refineries and semiconductor plants.

Stopping the harassment of truckers

The council is also planning to clean up how logistics are policed. While e-way bills have successfully tracked goods, truck drivers are frequently stopped and harassed by local officials. The new rules will specify that a vehicle can only be stopped for inspection in either its state of origin or its destination, preventing arbitrary checks in transit.

Additionally, to cut down on minor litigation, officials propose that no tax notices will be issued for disputes involving less than Rs 10,000—a bracket that currently accounts for nearly a fifth of all active cases.