India’s GST regime is on the verge of a significant reform aimed at making the indirect tax system more business-friendly. The GST Council, in its 57th meeting scheduled for October 7, 2026, is expected to consider a proposal to remove the power of arrest from GST officers and raise the threshold for criminal prosecution from ₹1 crore to ₹5 crore.
What Changes Are Being Proposed?
Curbing Arrest Powers
Under the current GST law, specifically Section 69, GST officers can arrest a person with the prior approval of a commissioner-level officer. The new proposal seeks to take away this power from tax officials entirely. Going forward, any arrest would require prior judicial approval, meaning a court order would be mandatory.
Raising the Prosecution Threshold
Under Section 132 of the CGST Act, the prosecution threshold was previously increased from ₹1 crore to ₹2 crore in earlier amendments (except for cases involving fake invoicing without actual supply). The new proposal aims to raise this baseline threshold across the board from ₹2 crore to ₹5 crore. This means routine tax disputes involving amounts below ₹5 crore will no longer attract criminal proceedings.
Keeping Routine Disputes Out of Criminal Ambit
The government has clarified that routine disputes related to classification, valuation, or input tax credit will be kept strictly outside the scope of criminal proceedings. Often, traders and tax authorities may have differing views on how a transaction should be categorised—such matters will be handled purely as civil disputes.
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Why Is This Change Being Introduced?
When GST was rolled out on July 1, 2017, the automated systems for detecting fake invoices and tax evasion were not fully robust. At that time, the fear of arrest was considered necessary. Today, however, GST’s data-driven and automated invoice-matching system has become significantly stronger. The system itself can now identify fake credits at an early stage.
Moreover, in most cases, those arrested were able to secure bail easily from courts. Many traders perceived this power as a tool for harassment by officials. Against this backdrop, the decision has been made to shift tax enforcement from a model based on ‘fear and arrest’ to one grounded in ‘technology, data, and civil recovery’.
What Impact Will This Have on Tax Recovery?
Removing the arrest power does not mean tax evasion will be condoned. The government’s civil powers to recover tax dues, levy interest, and impose penalties will remain fully intact. In smaller and routine cases, taxpayers will be able to settle matters by paying the outstanding tax, interest, and penalty. In serious cases of deliberate fraud and large-scale tax evasion, prosecution will still be pursued through the courts with judicial oversight. However, even the sentencing provisions are being made more pragmatic.
Relaxation Proposed in 24 Offences
The GST Council is also considering easing norms related to 24 offences under the GST law. Of these, 9 offences may be removed entirely, while 11 are proposed to be retained in their current form. There is also a proposal to remove the provision of mandatory minimum punishment, so that courts are not bound to impose jail terms in every case. For medium-category offences, the maximum punishment may be reduced from 3 years to 2 years.
Benefits for Businesses
Legal Protection: Arrests will now require court approval, reducing the scope for arbitrary action. Relief in Smaller Cases: Criminal proceedings will not be initiated for standard tax disputes below ₹5 crore. Routine Issues Decriminalized: Technical disputes around classification and ITC will no longer fall under criminal law. Reduced Sentencing: Removal of mandatory minimum jail terms will allow courts to opt for fines instead. Technology-Driven Enforcement: Detection of fraud will increasingly rely on data analytics and automation.
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GST 2.0: The Next Phase
In September 2025, a major overhaul of tax rates (GST 2.0) introduced a simplified structure with slabs of 5%, 18%, and 40% for luxury goods. The second phase now focuses on simplifying administration and reducing compliance burdens. This move aligns with the central government’s ‘Jan Vishwas (Amendment of Provisions) Act, 2026’ and its broader campaign to decriminalize economic offences.
What Happens Next?
These changes are currently at the proposal stage. They will require recommendation by the GST Council and subsequent statutory amendments to the CGST Act. If approved by the Council, the Centre may introduce a GST amendment bill during the upcoming session of Parliament.
Conclusion
The proposed reforms to the GST law could mark a turning point in India’s indirect tax regime. Removing arrest powers from tax officers and raising the prosecution threshold will provide relief to businesses, while simultaneously strengthening the use of technology and data analytics to curb tax evasion. The final outcome will become clear after the GST Council meeting on October 7.
FAQ
Q1: When will the GST Council meet to decide on these changes?
The 57th GST Council meeting is scheduled for October 7, 2026, where these proposals are expected to be discussed.
Q2: Will tax officers still be able to recover dues if they cannot arrest?
Yes. Tax authorities will retain full civil powers to recover tax dues, impose interest, and levy penalties. The change only affects criminal arrest powers, not civil recovery mechanisms.
Q3: What happens to cases already under investigation?
Existing cases will continue under the current legal framework until any statutory amendments are formally enacted and notified. Final transition guidelines will be clarified post-approval.
Q4: Does this mean tax evasion below ₹5 crore will go unpunished?
No. Taxpayers will still be liable to pay the evaded tax along with interest and heavy civil penalties. Only criminal prosecution and jail terms will not apply for standard cases below the ₹5 crore threshold.
Q5: Will genuine fraud cases still be prosecuted?
Yes. Deliberate fraud, fake invoice syndicates, and large-scale tax evasion will continue to be prosecuted through the courts, but now with judicial oversight for arrests.
Q6: How will this affect small and medium businesses?
Small and medium enterprises (SMEs) will benefit from reduced fear of arrest in routine disputes and technical disagreements over classification or ITC claims. This is expected to improve the ease of doing business.
Q7: When can these changes become law?
If recommended by the GST Council on October 7, the amendments will need to be passed by Parliament and ratified where required before being notified by the CBIC.
Q8: What is the Jan Vishwas Act’s role in this reform?
The Jan Vishwas (Amendment of Provisions) Act, 2026 is part of the government’s broader effort to decriminalise economic offences and reduce the burden of compliance on businesses. The GST reforms directly align with this initiative.
Sources
- Economic Times – GST 2.0’s next move: Council may scrap officers’ arrest powers, raise prosecution bar to Rs 5 crore
- Dainik Bhaskar – GST कानून में सुधार की तैयारी: टैक्स अधिकारियों से छिनेगा गिरफ्तारी का अधिकार
- Times of India – GST Council meeting on October 7: Arrest powers, ITC, prosecution threshold proposals on agenda
- India Today – GST officers may lose arrest powers as Centre plans major enforcement reform
- Hindustan Times – After rate overhaul, GST set for next big reform; officers’ arrest powers may be scrapped
