GST Council is likely to consider this week a sweeping rewrite of GST enforcement that would take arrest powers away from tax officials and require a court order for any arrest, people familiar with the proposal said, in what could become the next major pillar of the government’s Next-Generation GST reforms.
The GST Council, the apex decision-making body on the Goods and Services Tax (GST), is also likely to consider, at its October 7 meeting, a package of prosecution-related reforms, including raising the threshold for launching criminal proceedings for offences to Rs 5 crore.
The proposals also seek to narrow the scope of prosecution provisions so they do not apply to routine disputes over classification, valuation or Input Tax Credit, where businesses and tax authorities may hold differing interpretations of the same transaction, they said.
The proposed enforcement changes are part of the government’s Next-Generation GST reform agenda, following the major rate rationalisation implemented in September 2025. That overhaul simplified the GST structure around a 5 per cent merit rate and an 18 per cent standard rate, with a 40 per cent rate for select luxury and demerit goods.
The next phase is expected to focus on simplifying administration, reducing compliance costs and making enforcement more proportionate.
A wider package under consideration includes easier registration, faster refunds, simpler input-tax-credit procedures and changes to show-cause notices and penalties, the people said.
At the centre of the enforcement proposal is Section 69 of the Central GST Act, which allows the Commissioner, where statutory conditions are met, and there are reasons to believe specified offences have been committed, to authorise an officer to arrest a person. The proposed changes would remove that power from tax officials. Any arrest would instead require judicial authorisation, they noted.
They said the proposed changes would not remove the government’s ability to recover taxes or impose financial penalties. Compounding would allow an offence to be settled, subject to payment of the prescribed tax, interest and penalty. Taxpayers found to have short-paid tax or wrongly claimed input tax credit would continue to face recovery proceedings and other statutory consequences.
Serious cases involving deliberate evasion or fraud could continue to be prosecuted through the courts, they said.
The move would also fit into the government’s broader effort to decriminalise economic and regulatory offences. The Jan Vishwas (Amendment of Provisions) Act, 2026, sought to decriminalise a range of provisions across central laws, while changes to income-tax recovery rules have also reduced the role of arrest and detention.
The GST Council has previously considered decriminalising minor offences, raising prosecution thresholds and making compounding provisions more accessible.
For businesses, the proposed change would reduce the possibility of a tax dispute escalating into arrest before the underlying liability is finally determined, while leaving the government’s revenue-recovery powers intact.
For the tax administration, it would put greater emphasis on data-driven scrutiny, risk-based investigations and financial recovery rather than arrest as an enforcement tool.
Explaining the impact of the proposed changes, once approved by the Council, sources said that for offences like late filing of returns, classification disputes and delay in tax payment due to cash position, a taxpayer can now avoid arrest by paying tax, interest, and a proportionate penalty.
Currently, GST officers have the power to arrest, after prior authorisation from a Commissioner-level officer, in cases of major offences where tax evasion, fraudulent input tax credit (ITC), or wrongful refunds exceed Rs 1 crore.
AMRG Global Managing Partner Rajat Mohan said the proposal marks a significant shift in India’s indirect-tax enforcement philosophy – from arrest-led deterrence to technology-led detection and predominantly civil-liability-based enforcement.
“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,” Mohan said.
Sources said the arrest provision under GST law was not serving its intended purpose, as businesses perceived it as a tool used by GST officers to harass them. Moreover, individuals arrested by GST officers eventually secured bail in most cases. Actual imprisonment, however, can follow only after prosecution and conviction, with the offence established in accordance with law.
The GST Council, in its October 7 meeting, is likely to discuss decriminalisation and consequent changes in the law to remove the power to arrest a person by GST officers, and instead have tax officers focus on recovering tax, levy interest and penalty.
“The threshold for prosecution is proposed to be raised from Rs 1 crore to Rs 5 crore. That would reserve the criminal process for cases whose scale warrants it,” a source said, adding that GST officers will now focus on settling disputes by collecting tax and let law enforcement agencies handle launching prosecution.
Building further on last year’s GST 2.0 rate rationalisation, the process reform proposals before the GST Council will directly affect traders, businesses and their families. The reform would also show the trust the government has in businesses, sources said.
The proposals before the Council include softening 24 offences listed under the prosecution provision of the GST law, removing nine offences entirely, while retaining 11 as they are.
Besides, the provision on minimum sentence is proposed to be removed, so a court is no longer bound to impose a term of imprisonment. A fine is available as an option in every case, while the maximum sentence in the middle band has come down from 3 years to 2.
The Council would also consider the proposal to waive late fees for small taxpayers and rationalise penalties.
When the GST law was implemented on July 1, 2017, the power of arrest was one of the few tools available against fake invoicing and GST evasion. It was difficult to match invoice by invoice from the returns filed and detect fraud, and so this arrest provision was introduced as a deterrent.
However, today the invoice matching system links what a seller reports with what a buyer claims. The mapping of the input and output ledgers with the summary return completes that link. Now, fake credit can be identified close to where it arises, and it can be stopped before it moves down the chain. The safeguard that arrest was meant to provide is now provided by the system itself.
Sources said the arrest provisions are hence proposed to be removed, and instead tax disputes are proposed to be resolved through civil consequences, namely tax recovery, interest and penalty.
