The 57th GST Council on Thursday approved a series of changes to GST enforcement and compliance, with the government describing the latest measures as a shift towards making the tax system easier to operate on a day-to-day basis.

Among the biggest decisions, the Council scrapped the arrest powers of GST officers and raised the threshold for launching prosecution from Rs 1 crore to Rs 5 crore.

The Council also removed the minimum punishment prescribed under GST law. Any punishment, whether a fine, imprisonment or both, will be left to judicial discretion in individual cases.

What changes under the new GST rules?

The prosecution threshold has been increased fivefold, meaning cases involving an amount below Rs 5 crore will no longer meet the threshold for prosecution under the provision.

The general penalty, applicable where no specific penalty is prescribed, has also been reduced from Rs 25,000 to Rs 10,000.

The changes are part of a wider attempt to standardise GST enforcement and reduce unnecessary procedural disputes.

One standard for GST notices and litigation

The Council has proposed a common framework covering how GST notices are issued and served, how pre-notice communication is handled, when fraud can be alleged, how hearings are conducted and how final orders are written.

No notice will be issued for cases involving an amount below Rs 10,000.

The measures are intended to bring greater consistency to GST proceedings and provide businesses with clearer procedures when they face tax disputes.

Relief proposed for genuine input tax credit claims

A Committee of Officers will examine safeguards for genuine buyers who have a valid invoice, have received the goods and have paid their suppliers in full.

The committee has been given three months to complete its study. Its recommendations will then be placed before the GST Council.

The Council has also approved several changes concerning input tax credit, including allowing credit on health and life insurance taken for employees, telecommunication towers and pipelines outside factories, as well as certain free samples and stock written off after expiry where destruction is required by law.

Refunds and registration to become easier

The Council has approved measures aimed at speeding up GST refunds. The acknowledgement period for refund applications will be reduced from 15 days to 10 days.

If neither an acknowledgement nor a deficiency memo is issued within 10 days, the claim will be treated as acknowledged. The system will sanction 90 per cent of the claim based on risk assessment, with the order to be issued within three working days of acknowledgement.

GST registration and cancellation processes will also be increasingly automated, particularly for low-risk taxpayers. Certain amendments to registrations, including changes involving trade names, directors, partners and additional business addresses, will be accepted automatically.

Fewer notices for minor return discrepancies

The Council also plans to reduce system-generated notices arising from differences between GST returns. Around 95,000 such notices are reportedly generated each year, while recovery against these cases is very low.

Under the proposed process, corrections made by sellers will flow through to buyers who have claimed input tax credit. Corrections for earlier periods, including cases involving an incorrectly entered GST registration number, will also be allowed.

Why the changes matter

The latest decisions go beyond GST rate changes and focus on how businesses interact with the tax system. The government has said the rate structure is now settled and that the focus is shifting towards improving GST's day-to-day functioning.

For businesses, the most significant changes could be the removal of arrest powers, the higher prosecution threshold and greater standardisation of notices and hearings. The proposed safeguards for genuine input tax credit claims could also address a long-standing concern for buyers who have complied with their side of a transaction but face disputes over their suppliers.

Faster refunds and greater automation of registration, cancellation and routine corrections could further reduce the need for manual intervention.

Is this the end of ‘tax inspector raj’?

The Council's decisions do not remove GST enforcement or the government's ability to investigate tax evasion. Instead, they change several enforcement mechanisms and raise the financial threshold for prosecution.

The most consequential shift is the removal of arrest powers for GST officers and the increase in the prosecution threshold from Rs 1 crore to Rs 5 crore. Together with the removal of minimum punishment, these measures could reduce the scope for coercive action in lower-value cases, while serious tax offences would continue to be dealt with under the law.

The broader reform agenda is aimed at moving GST towards a more automated and standardised system. The impact will depend on how the decisions are translated into rules and implemented by tax authorities and businesses.