In Major Reform, GST Council Scraps Tax Officers' Arrest Powers

The GST Council, chaired by Finance Minister Nirmala Sitharaman, on Thursday approved scrapping the arrest powers of GST officers and raised the threshold to launch prosecution to Rs 5 crore from Rs 1 crore.

The minimum punishment stands removed, and the punishment - whether fine, imprisonment, or both - is left to judicial discretion in every case, as per the council decision. The general penalty, which applies where no specific penalty is provided, comes down from Rs 25,000 to Rs 10,000, the Ministry said.

A taxpayer who files late, makes an error or delays payment will face recovery, interest and a proportionate penalty, but nothing beyond that.

Businesses across India had complained about stringent tax practices and sought better ease of doing business.

The changes approved by the GST Council, comprising Union and state finance ministers, will be implemented from April 1, 2027.

Addressing reporters after the meeting, Minister Sitharaman said the Council focused on process-related reforms aimed at improving ease of doing business and reducing compliance burdens rather than making changes to GST rates.  

"When we say arrest has been taken out, taken out from a tax officer's hands," Sitharaman said, clarifying the decision.

However, she underscored that criminal prosecution would continue to be available under the GST law.

"The act provides for prosecuting people if there's a criminality," she said.

In another relief for taxpayers, the Council recommended that notices involving amounts below Rs 10,000 should not be issued, while pending notices below the threshold would also be withdrawn.

"Equally, we will be withdrawing pending notices below the said threshold. If it was issued, it'll be withdrawn," Sitharaman said.

The GST reform process has been driven from the principle of trust, the Minister said.

"Business has to be trusted. Taxpayers have to be trusted. And businesses among themselves, with trust, if they do it, we shouldn't be too intrusive," she added.