The GST Council has approved a set of taxpayer-friendly reforms aimed at reducing compliance pressure on businesses, including removing the power of GST officers to make arrests and raising the threshold for initiating prosecution to Rs 5 crore from the existing Rs 1 crore.

The decisions were taken at a meeting of the Council chaired by Union Finance Minister Nirmala Sitharaman on Thursday. The changes are scheduled to come into effect from April 1, 2027.

The Council, which includes the Union and state finance ministers, focused on procedural changes intended to simplify GST administration and improve the ease of doing business.

GST officers to lose arrest powers

Under the revised framework, GST officers will no longer have the authority to arrest taxpayers.

Sitharaman clarified that the change removes arrest powers specifically from tax officials and does not eliminate the possibility of criminal prosecution under the GST law.

“The act provides for prosecuting people if there's a criminality,” the Finance Minister said.

The prosecution threshold has simultaneously been increased from Rs 1 crore to Rs 5 crore.

Courts to decide punishment

The Council also approved changes to the penalty framework. The existing minimum punishment has been removed, leaving courts to determine the appropriate sentence in individual cases.

Depending on the circumstances, the punishment could involve a fine, imprisonment or both.

The move is intended to ensure that penalties are proportionate to the nature of the offence rather than being subject to a mandatory minimum punishment.

General penalty reduced

The Council also lowered the general penalty applicable in cases where the GST law does not prescribe a specific penalty.

The maximum general penalty has been reduced from Rs 25,000 to Rs 10,000.

The government said taxpayers who make errors, file returns late or delay tax payments would continue to face recovery proceedings, applicable interest and proportionate penalties.

Notices below Rs 10,000 to be dropped

In another measure aimed at reducing compliance burdens, the Council recommended that GST notices involving amounts below Rs 10,000 should not be issued.

Existing notices below the new threshold will also be withdrawn.

Sitharaman said the decision would apply to pending notices as well, providing relief in cases involving relatively small amounts.

Focus on ease of doing business

The reforms come after businesses raised concerns over stringent GST enforcement practices and called for a more predictable compliance environment.

Sitharaman said the latest decisions were focused on improving GST processes rather than changing tax rates.

The reforms are expected to reduce the regulatory burden on businesses while retaining criminal prosecution provisions for cases involving genuine criminality.

The changes approved by the GST Council will take effect from April 1, 2027.