The GST Council has approved a wide-ranging procedural overhaul that will remove tax officers’ arrest powers, speed up refunds, reduce truck stoppages and lower compliance costs for businesses, with the changes expected to be rolled out from April after the required legal and system amendments.
The decisions were taken at a six-hour meeting led by Union finance minister Nirmala Sitharaman. The Council also raised the monetary threshold for prosecution five-fold to Rs 5 crore and approved changes to penalties and dispute resolution under the Central Goods and Services Tax Act.
One of the most significant measures is the proposed removal of arrest powers available to officers under Section 69 of the CGST Act. Sitharaman said the power had not existed under the earlier VAT regime and that the change was part of a move towards a trust-based tax administration. The Council also decided that prosecution notices would not be issued where the tax involved is below Rs 10,000. Existing notices in around 12 lakh cases are also expected to be withdrawn.
For non-fraud cases, taxpayers who pay the tax and interest voluntarily will face a reduced penalty of 5% if the interest is paid within 30 days. The period will extend to 60 days where the payment follows adjudication. The maximum general penalty is proposed to be reduced from Rs 25,000 to Rs 10,000, while the pre-deposit required for filing appeals will be capped at Rs 40 crore.
The Council also approved measures aimed at reducing delays in the movement of goods between states. Officials in states other than the origin and destination will no longer be allowed to intercept trucks. Where interception is permitted by an officer of at least the rank of joint commissioner, it will require specific information, according to the finance minister. For freight operators and businesses dependent on inter-state supply chains, the changes are intended to reduce stoppages and administrative friction.
The refund system is also being redesigned. The Council intends to process 90% of refund claims within three days and reduce the acknowledgement period from 15 days to 10 days. A system of deemed acknowledgement will also be introduced. Businesses will be allowed to claim refunds of accumulated input tax credit related to capital goods, with the facility spread over 60 months from November. The measure is expected to be relevant to long-gestation projects, including businesses carrying substantial capital expenditure.
The Council removed restrictions on the use of input tax credit for supplies including health and life insurance, outdoor catering, free samples, telecom towers and pipelines laid within factories. It also approved several service-sector simplifications intended to support exports.
Small businesses with turnover of up to Rs 5 crore that sell only to consumers will be allowed, in principle, to file annual returns. Businesses selling through e-commerce platforms will not need to register in multiple states, a change the Council said could benefit 90% of such sellers. Registration procedures are also being rationalised, with a stated aim of enabling most businesses to register within three days and allowing certain changes to be processed automatically.
The Council deferred a proposal concerning input tax credit for businesses that collect tax but do not deposit it. The proposal would allow other entities in the supply chain to continue claiming credit, but it has been referred to a committee of officers for recommendations within three months. The committee’s recommendations are intended to be ready by April.
Prime Minister Narendra Modi said on social media that the measures would promote faster decisions, lower compliance costs, automated refunds and trust-based administration. The reforms will require amendments to the law and changes to GST systems before implementation.
