The GST Council is likely to consider a sweeping overhaul of tax compliance and enforcement at its October 7 meeting, including the removal of arrest provisions under the GST law, a higher threshold for prosecution and faster refunds through a system allowing 90% of eligible claims to be released after automated risk assessment.
The proposals form part of the next phase of GST reforms aimed at reducing compliance burdens and shifting enforcement away from criminal action in routine cases. The government is seeking to rely more heavily on invoice matching, digital trails and data analytics to identify suspicious transactions while allowing compliant businesses to access refunds and input tax credit more quickly.
Arrest provisions may go
One of the most significant proposals is the complete removal of arrest provisions from GST laws. At present, Section 69 of the Central GST Act empowers the Commissioner to authorise the arrest of a person where there are reasons to believe that specified offences have been committed, subject to the conditions prescribed under the law.
Under the proposed framework, routine violations would instead attract civil consequences such as recovery of unpaid tax, interest and penalties. Criminal prosecution would continue for serious cases involving deliberate fraud, while any changes to the existing arrest framework would require amendments to GST legislation.
The proposal follows concerns raised by businesses over the use of arrest powers in tax disputes. Central GST formations made 887 arrests across 72,393 GST violation cases between 2021-22 and 2024-25, according to official figures reported in connection with the review.
Prosecution bar may rise
The Council is also expected to consider raising the monetary threshold for prosecution from Rs 1 crore to Rs 5 crore, concentrating criminal proceedings on more serious cases of tax fraud.
An expert committee reviewing GST offences has proposed removing nine offences altogether and partially removing another. Another 24 offences could be softened, while 11 would be retained under the criminal enforcement framework.
The proposals would also remove mandatory minimum sentences in certain cases and provide courts with the option of imposing fines. Routine disputes involving issues such as classification, valuation and input tax credit interpretation are also proposed to be kept outside the criminal prosecution framework where there is no evidence of deliberate fraud.
Serious offences involving fake invoices, fraudulent input tax credit and intentional tax evasion would continue to face enforcement action.
90% refund proposed
Another major proposal concerns GST refunds, an area that has long affected the working capital of exporters and businesses operating under an inverted duty structure.
Under the proposed system, eligible low-risk refund applications would be assessed using government-held data and automated risk parameters. Up to 90% of the eligible refund amount could then be released provisionally without waiting for the entire claim to undergo detailed manual scrutiny.
The approach builds on risk-based provisional refund reforms already initiated under the GST framework. The government is seeking to extend and streamline the system so that compliant taxpayers do not have to wait for lengthy verification before receiving most of the money due to them.
Claims flagged as higher risk would continue to undergo detailed scrutiny, while officers would retain the ability to withhold provisional refunds in exceptional cases after recording reasons.
Faster acknowledgement
The broader refund overhaul could also significantly reduce the time taken to acknowledge claims. Refund applications are proposed to be processed largely on the basis of information already available with the government rather than repeatedly requiring businesses to submit supporting documents.
Acknowledgements could be issued within 10 days, and if no action is taken within the prescribed period, the claim could be treated as acknowledged. The intention is to reduce both processing delays and the need for businesses to repeatedly follow up with tax authorities.
Faster refunds would be particularly important for exporters because delayed tax reimbursements lock up working capital that could otherwise be used for production, salaries, investment and expansion.
Technology to replace discretion
The proposed easing of enforcement is being linked to improvements in GST’s digital infrastructure. The government believes invoice-level matching now provides tax authorities with a clearer trail between sales reported by suppliers and input tax credit claimed by buyers.
By linking invoices, input and output ledgers and summary returns, the system can identify suspicious credit closer to the point at which it originates. The objective is to detect fake input tax credit before it moves through multiple layers of transactions rather than relying primarily on coercive enforcement after the event.
The shift could also reduce disputes generated by mismatches between different GST returns. More than 95,000 notices are generated annually over discrepancies in returns, highlighting the compliance burden created by inconsistencies in reported data.
ITC rules may ease
The October 7 meeting is also expected to consider changes intended to widen access to input tax credit. Proposals under discussion include easing restrictions for certain services and capital goods and allowing businesses greater flexibility in recovering tax paid on equipment.
One proposal would allow tax paid on equipment to be recovered over five years, aligning the credit mechanism more closely with the useful life of the asset. The government expects easier access to credit to reduce upfront project costs and improve cash flows for businesses undertaking capital investment.
The Council is also expected to discuss input tax credit on certain employee-related insurance expenses and other areas where businesses have sought greater clarity or eligibility.
Relief for small businesses
Small businesses could receive a simplified compliance option under another proposal likely to come before the Council. Businesses with annual turnover of up to Rs 5 crore that sell exclusively to consumers who are not registered under GST could be allowed to file a single annual return while paying tax quarterly.
The proposed system would reduce the frequency of return filing for eligible businesses without changing their tax liability. Since their customers do not claim input tax credit, the government believes less frequent filing would not significantly disrupt the credit chain.
The package marks a shift in the direction of GST reform from primarily changing tax rates towards simplifying administration, reducing criminalisation and making compliance increasingly system-driven. The proposals, however, remain subject to approval by the GST Council, and several of the most significant changes, particularly those involving arrest and prosecution provisions, would require legislative amendments before taking effect.