GST Council Meeting 2026: Tax officers' arrest powers scrapped, prosecution threshold raised to Rs 5 crore; no rate changes

The GST Council on Thursday approved the removal of GST tax officers' powers to arrest individuals under the Goods and Services Tax (GST) law and raised the prosecution threshold fivefold from Rs 1 crore to Rs 5 crore, while leaving tax rates unchanged at its 57th meeting.

The Council also approved reducing the general penalty from Rs 25,000 to Rs 10,000, accelerating tax refunds, simplifying registration for small e-commerce sellers and easing compliance requirements for businesses.

Finance Minister Nirmala Sitharaman said the reforms announced on Thursday would be implemented from April 1, 2027, the beginning of the next financial year.


The Council also decided that GST rate-related matters would be considered once a year at a meeting dedicated exclusively to tax rates.

GST officers lose arrest powers, prosecution threshold raised

Under the approved changes, GST tax officers will no longer have the power to arrest taxpayers or other individuals under the GST law. The Council also increased the monetary threshold for initiating prosecution from Rs 1 crore to Rs 5 crore.

It removed the provision for minimum punishment, leaving decisions on fines, imprisonment or both to judicial discretion.

The general penalty, applicable where no specific penalty is prescribed, will be reduced from Rs 25,000 to Rs 10,000.

Taxpayers who file returns late, make mistakes or delay payments will face tax recovery, interest and proportionate penalties, without additional punitive action for such defaults.

Faster GST refunds approved

The Council reduced the time limit for acknowledging refund claims from 15 days to 10 days. Claims will be deemed acknowledged if no acknowledgement or deficiency memo is issued within that period.

Under the new system, 90% of eligible refund claims will be sanctioned automatically following risk assessment, with orders issued within three working days instead of seven.

Refunds of excess balances in electronic cash ledgers will also become fully automatic.

MSMEs and small sellers get compliance relief

The Council approved in principle an optional annual return scheme for businesses with turnover of up to Rs 5 crore that supply exclusively to consumers. Eligible taxpayers will file returns annually while paying GST quarterly.

It also approved a Rs 10,000 minimum threshold for issuing show-cause notices.

Small sellers operating through e-commerce platforms will be allowed to use a platform operator's warehouse as their principal place of business in another state, subject to conditions, eliminating the need to establish separate physical premises.

GST registration and amendments will also be simplified through automated approvals and technology-led processes.

ITC relief and export reforms

The Council approved input tax credit on health and life insurance purchased by businesses for employees, along with telecommunications towers, certain pipelines, free samples and specified expired stock.

It also extended refunds under the inverted duty structure to input services and removed the exclusion of plant and machinery from refunds for exporters and eligible businesses.

Refund eligibility for input services will apply to credit availed on or after November 1, 2026, while plant and machinery refunds will apply to credit availed on or after April 1, 2027.

On protecting genuine buyers from ITC reversals caused by supplier defaults, the Council decided to constitute a committee of officers. The committee will submit its findings within three months for consideration at the next meeting.

Exporters and transporters get relief

The Council approved clarifications allowing services provided through overseas branches and work undertaken in India on goods belonging to foreign clients to qualify for export benefits.

It also restricted physical checks of goods in transit to cases involving specific intelligence and prior authorisation from an officer not below the rank of Joint Commissioner.

Only the originating and destination states will be permitted to inspect goods in transit, reducing repeated checks along transport routes.

No GST rate changes

The Council made no changes to GST rates, with the Finance Ministry stating that the existing rate structure was settled.

According to the ministry, taxable supplies have risen 25.8%, from Rs 40.19 lakh crore to Rs 50.58 lakh crore a month, following the introduction of the two-rate structure.

The effective tax rate on domestic supplies declined from 14.55% to 13.13%, while GST revenue grew 11% in FY2026-27 compared with the previous year.