GST 2.0's next move: Council may scrap officers' arrest powers, raise prosecution bar to Rs 5 crore

The Goods and Services Tax Council is likely to consider a sweeping overhaul of tax enforcement at its October 7 meeting, including scrapping the power of GST officers to arrest taxpayers and requiring a court order for any arrest, in what could become the next major step in the government's Next-Generation GST reforms, PTI reported on Sunday.

The Council is also likely to consider raising the threshold for launching criminal prosecution from Rs 1 crore to Rs 5 crore, while narrowing prosecution provisions to keep routine disputes over classification, valuation and input tax credit (ITC) outside the criminal process.

Also read: GST relief for gaming companies raises hopes across the sector


The proposals follow the major GST rate rationalisation implemented in September 2025 and are aimed at making enforcement more proportionate, with greater emphasis on tax recovery, interest and penalties rather than arrest.

Arrest powers may shift from GST officers to courts

At the centre of the proposed changes is Section 69 of the Central GST Act, which currently allows the Commissioner, subject to statutory conditions and reasons to believe that specified offences have been committed, to authorise an officer to arrest a person.

The proposed reform would remove this power from GST officials. Any arrest would instead require judicial authorisation.

The changes would not take away the government's powers to recover tax or impose financial penalties. Taxpayers found to have short-paid tax or wrongly claimed ITC would continue to face recovery proceedings and other statutory consequences.

The proposals also envisage changes to prosecution provisions. Of the 24 offences currently covered, nine could be removed entirely, while 11 would remain unchanged. The minimum sentence provision is also proposed to be removed, allowing courts greater discretion, including the option of imposing a fine. The maximum sentence in the middle band could be reduced from three years to two.

Rs 5 crore threshold could reserve criminal action for serious cases

The Council is likely to consider increasing the prosecution threshold from Rs 1 crore to Rs 5 crore. The change would reserve the criminal process for cases involving larger amounts, while lower-value disputes could be addressed through tax recovery, interest and penalties.

Routine disagreements between taxpayers and authorities over GST classification, valuation or ITC eligibility would also be kept outside prosecution under the proposed framework.

The shift comes as GST's technology architecture has evolved significantly since the law was introduced in 2017. Invoice-level information now enables closer matching of what sellers report with what buyers claim, helping identify potentially fraudulent ITC earlier in the transaction chain.

The proposed changes would therefore shift enforcement towards data-led detection and financial recovery, rather than arrest as a primary deterrent.

The wider reform package before the Council could also include easier GST registration, faster refunds, simpler ITC procedures, changes to show-cause notices and penalties, and relief on late fees for small taxpayers.

Also read: GST 2.0 revived demand. Now industry wants its tax credit unstuck

Prosecution for serious fraud in the books

The government has previously moved towards decriminalising minor economic and regulatory offences, including through the Jan Vishwas (Amendment of Provisions) Act, 2026.

The proposed GST changes would build on that approach while retaining criminal prosecution for serious cases involving deliberate evasion or fraud.

"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," AMRG Global Managing Partner Rajat Mohan was quoted as saying by PTI.

People in the know of the matter told PTI that the proposed Rs 5 crore threshold would "reserve the criminal process for cases whose scale warrants it".

The GST Council's decisions on the proposals will determine the final shape of the enforcement changes, with amendments to the GST law required to give effect to any changes approved by the Council.

(With inputs from PTI)