GST Council scraps officer arrest powers, raises prosecution threshold to ₹5 crore

NEW DELHI — The Goods and Services Tax (GST) Council on Thursday abolished the power of tax officers to arrest taxpayers and raised the minimum value threshold for initiating criminal prosecution to ₹5 crore, marking a significant shift in the enforcement framework of India’s indirect tax regime. The decision, taken during the council’s 61st meeting, was aimed at reducing the adversarial nature of tax compliance and curbing the use of coercive measures in cases of minor or technical non-compliance.

The council, chaired by Union Finance Minister Nirmala Sitharaman, unanimously approved the amendments to the Central Goods and Services Tax (CGST) Act and the Integrated Goods and Services Tax (IGST) Act. Under the revised provisions, the power to arrest a person for default in payment of tax or for other offenses under the GST laws has been removed from the jurisdiction of tax officers. Instead, the authority to arrest will now rest solely with the police, subject to the standard legal procedures applicable to criminal offenses.

Simultaneously, the council increased the threshold for initiating prosecution for non-payment of tax from ₹2.5 crore to ₹5 crore. This means that in cases where the amount of tax, interest, and penalty due is less than ₹5 crore, the matter will be treated as a civil or administrative dispute rather than a criminal offense. The move is expected to significantly reduce the number of criminal cases filed against taxpayers for relatively small dues, thereby easing the burden on the judicial system and improving the ease of doing business.

Focus on refunds and registration

In addition to the enforcement reforms, the council approved measures to streamline the refund process and simplify the registration procedure for taxpayers. The new guidelines mandate that refunds of excess input tax credit (ITC) be processed within a specified timeline, with automatic interest payments for delays. The council also directed the GST authorities to reduce the number of documents required for registration and to implement a single-window clearance system for large taxpayers.

The decision to scrap arrest powers and raise the prosecution threshold follows sustained criticism from industry bodies and legal experts, who had argued that the existing provisions were being misused to extract undue concessions from businesses. The reforms align with the government’s broader objective of creating a more predictable and less intrusive tax environment, in line with the recommendations of the GST Council’s earlier committees on enforcement and compliance.

No changes to rate structure

The council did not approve any changes to the existing GST rate structure, which currently comprises four slabs: 5%, 12%, 18%, and 28%. The decision to defer rate rationalization was taken to allow for further consultation with state governments and industry stakeholders. The council noted that any changes to the rate structure would require a two-thirds majority and would have significant implications for revenue and inflation, necessitating a careful assessment of the macroeconomic impact.

The meeting also addressed issues related to the transition from the old tax regime to GST, including the resolution of pending disputes and the implementation of the e-invoicing and e-way bill systems. The council directed the GST Network (GSTN) to enhance the security and reliability of the GST portal and to provide better support to taxpayers in navigating the digital compliance processes.

The reforms are expected to be implemented through amendments to the CGST and IGST Acts, which will be introduced in Parliament in the upcoming session. The government has assured that the changes will be effective from the date of their notification, with a transition period for taxpayers to adjust to the new compliance requirements.