GST Council Approves Big Reforms: Arrest Powers Removed, Prosecution Threshold Raised to ₹5 Crore
The GST Council, the top decision-making body for the Goods and Services Tax, approved a large set of reforms at its 57th meeting (8 October 2026). These complete the "GST 2.0" makeover that began with the rate cuts of September 2025.
Decriminalisation: The Council recommended removing tax officers' arrest powers under Section 69 of the CGST Act, raising the threshold for criminal prosecution from ₹1 crore to ₹5 crore, and turning several criminal offences into civil (money-penalty) matters.
Fewer small disputes: A show-cause notice (a formal letter asking a taxpayer to explain why tax should not be demanded) will be issued only for amounts above ₹10,000. This relief will also apply to past cases.
Input tax credit (ITC) relief: Refunds under the inverted duty structure will now also cover accumulated credit on input services, for credit built up from 1 November 2026. Tax paid on plant and machinery will be refunded monthly over five years, and credit is allowed on more business costs, such as employees' health and life insurance, outdoor catering, telecom towers and pipelines outside factories.
Two ITC proposals were deferred: changing Section 16(2) (which links a buyer's credit to the supplier paying tax) and allowing ITC on motor vehicles under Section 17(5). A committee of officers will study them within three months.
The process reforms are planned to take effect from 1 April 2027. Going forward, the Council will change GST rates only once a year. The law changes need amendment Bills in Parliament and in state legislatures.
GST Act Provisions on Offences and Arrests
The GST law punishes wrongdoers in two ways. Most cases get a money punishment: tax, interest and penalty, decided by tax officers. The most serious frauds, such as fake invoices and large tax evasion, can also lead to prosecution, which is a criminal case in court that can end in jail. Until now, senior tax officers could also arrest a person in big fraud cases even before a trial.
The Council's decision is the biggest step so far in moving GST to "trust-based" tax administration. Honest mistakes and interpretation disputes will lead to money consequences only, while criminal cases are kept for large, deliberate frauds above ₹5 crore. Removing Section 69 means GST officers will no longer be able to arrest taxpayers on their own authority.
Input Tax Credit (ITC) Mechanism Under GST
Input Tax Credit (ITC) is the heart of GST. When a business buys raw materials or services, it pays GST on them. When it sells its own product, it subtracts the GST already paid on purchases from the GST it owes on sales. So tax is paid only on the value added at each step, and "tax on tax" is avoided.
Many businesses have large amounts of credit stuck because of the inverted duty structure and blocked-credit rules. The Council's decisions free up some of this money, which economists expect to act as an indirect boost to industry. The deferred changes to Sections 16(2) and 17(5) show that the hardest ITC questions are still under discussion.
The GST Council (Article 279A)
The GST Council is a constitutional body made up of the Union Finance Minister and the finance ministers of all states. It recommends the main rules of GST: tax rates, which goods and services are taxed or exempt, and changes to the law. Because GST is a shared tax between the Centre and the states, the Council is the place where both sides decide together.
The 57th meeting shows the Council at work on the law and procedure side of GST, not just tax rates. Its recommendations on arrests, prosecution and ITC now need Parliament and the states to amend their GST Acts. The Council has also decided that rate changes will be made only once a year, which gives businesses more certainty.
- 57th GST Council meeting: 8 October 2026; process reforms to apply from 1 April 2027
- Prosecution threshold: raised from ₹1 crore to ₹5 crore (recommended)
- Arrest power under Section 69 of the CGST Act: to be removed (recommended)
- Show-cause notice: only for amounts above ₹10,000, with relief for past cases
- Inverted duty refund extended to input services: on credit accumulated from 1 November 2026
- Tax paid on plant and machinery: to be refunded monthly over five years
- Deferred: Section 16(2) and ITC on motor vehicles under Section 17(5), to a committee of officers (three months)
- GST rate changes: only once a year going forward
- GST two-slab structure (5% and 18%) since 22 September 2025; GST law now in its 10th year (launched 1 July 2017)
- Real GDP growth in the first quarter (April-June) of 2026-27: 7.8%