GST Council Recommends Removing Arrest Powers and Raising the Prosecution Threshold to ₹5 Crore

The GST Council 57th meeting was held on 8 October 2026 under the chairmanship of Union Finance Minister Nirmala Sitharaman, with the finance ministers of the States and Union Territories. It was the first Council meeting in over a year, and it was widely watched. Unlike the 56th meeting in September 2025, which reshaped the GST rate structure, this meeting was about enforcement and process reform. No GST rates were changed.

The GST Council 57th meeting introduced recommendations that are among the most significant changes to GST enforcement since the law came into force in 2017.

For businesses, traders and professionals, the recommendations are among the most significant changes to GST enforcement since the law came into force in 2017.

Insights from the GST Council 57th meeting

• Arrest powers: The Council recommended removing the arrest powers of GST officers. Reports say arrest would no longer be possible on an officer’s own authority and would need judicial authorisation, meaning a court order once prosecution is launched.
• Prosecution threshold: The monetary threshold for launching criminal prosecution is to rise from ₹1 crore to ₹5 crore.
• General penalty: The general penalty is to be reduced from ₹25,000 to ₹10,000.
• Movement of goods: Inspection, detention and seizure of goods in transit are to be limited to officers of the supplier’s state or the destination state.
• Rates: No change in any GST rate.

What the law provides today

Under Section 69 of the CGST Act, a Commissioner can authorise a GST officer to arrest a person in specified cases. In practice, this applies to major offences such as tax evasion, fraudulent input tax credit (ITC) claims or wrongful refunds above ₹1 crore. Many taxpayers and trade bodies have argued that the fear of arrest, even in cases that are really disputes over interpretation, discourages small businesses from staying in the formal system.

The proposal would amend Section 69 so that arrest requires judicial approval instead of being decided within the department. Officials have pointed out that tax officers did not have arrest powers under earlier indirect tax laws such as VAT and service tax, and that technology now provides much of the safeguard the arrest power was meant to give.

Prosecution to be reserved for serious cases

Raising the prosecution threshold fivefold means that criminal proceedings will be reserved for cases involving larger sums and more serious fraud. The proposals are also meant to ensure that disputes over classification, valuation and ITC that arise from differing interpretations of the law are not treated as criminal offences. For a business that has taken a reasonable, documented position on a debatable question, this is a meaningful relief.

What does not change

It is important to read this reform correctly. It is not an amnesty for evasion. The proposed changes do not affect the government’s powers to recover unpaid tax or to charge interest and penalties. Officers can still issue notices, raise demands and recover dues. Prosecution also remains available for serious offences such as fake invoicing and fraudulent ITC, only with a higher threshold and, in the case of arrest, court oversight.

Why the shift in approach?

The reforms come as GSTN’s technology has matured. Authorities can now use invoice-level data to identify suspicious transactions and fraudulent ITC claims. The thinking behind the reform is a move from arrest-led deterrence to data-led detection and civil enforcement. The wider reform package is also expected to cover easier registration, faster refunds, simpler ITC procedures, changes to notices and penalties, and late-fee relief for small taxpayers.

When will these changes apply?

These are recommendations of the Council. They must be given effect through amendments to the CGST Act and corresponding State GST laws, followed by notifications. Reports indicate that the process reforms will be implemented in stages, with the changes forming part of the implementation agenda from 1 April 2027. Until the amendments are notified, the existing provisions continue to apply, so businesses should not assume that the new regime is already in force.

Practical steps for businesses

1. Do not relax your compliance standards. Recovery, interest and penalties continue, and genuine fraud can still lead to prosecution.
2. Keep your ITC clean. Reconcile GSTR-2B with your books regularly and check that your suppliers are actually filing returns and paying tax.
3. Document your positions. Where classification, valuation or ITC eligibility is arguable, keep a written basis for the stand you have taken.
4. Respond to notices on time. Even without arrest risk, missed replies lead to ex-parte orders, interest and penalties.
5. Track the notifications. Final thresholds, the list of offences and effective dates will become clear only when the amendments are notified.
6. Review transit documentation. With the change on inspection and seizure of goods, make sure e-way bills and invoices are in order.

Disclaimer: This article is for general information only and does not constitute professional advice. The decisions discussed are recommendations of the GST Council and remain subject to amendments to the law and official notifications. Please consult a qualified professional before acting on them.