The GST Council’s reported plan to review arrest powers, prosecution thresholds, input tax credit protections and compliance rules on October 7 points to a significant change in how India’s indirect tax system may govern businesses. The proposals, if approved, would move GST administration away from treating criminal enforcement as a routine deterrent and towards simpler registration, targeted scrutiny and greater protection for compliant businesses.
The package is part of the government’s next phase of GST reforms, described in the report as “GST 2.0” process reforms. While the September 2025 rate rationalisation focused on simplifying the tax structure around 5% and 18% rates, with a 40% rate for selected luxury and demerit goods, the proposals before the Council concern the functioning of the system itself. They address how taxpayers are arrested, when criminal prosecution begins, who bears responsibility when a supplier defaults and how small sellers participate in e-commerce.
That distinction matters because the impact of GST is not limited to tax departments and large companies. Its registration, invoicing, input tax credit and return-filing rules shape the operating environment for manufacturers, traders, service providers, delivery businesses and small online sellers. In cities, where commercial activity increasingly moves through formal digital platforms and distributed supply chains, the design of these administrative rules can influence who is able to sell, expand and remain compliant.
The most consequential proposal concerns Section 69 of the Central Goods and Services Tax Act. The provision currently allows the Commissioner to authorise an officer to arrest a person when statutory conditions are met and there are reasons to believe that specified offences have been committed. According to the report, the proposal would remove this power from GST officials and require judicial authorisation for an arrest.
The reported change would not eliminate tax recovery, interest or financial penalties. Serious cases involving deliberate evasion or fraud could still be prosecuted through the courts. Instead, it would separate the administrative process of assessing and recovering tax from the more coercive act of arrest. That would make the criminal justice system a more clearly defined stage of enforcement rather than an extension of routine tax administration.
Rajat Mohan, managing partner at AMRG Global, described the proposed direction as a shift from arrest-led deterrence to technology-led detection. He said the focus was increasingly on using GSTN’s data capabilities to detect fraud rather than relying on coercive powers. The comment captures the institutional choice at the centre of the package: whether compliance should be secured primarily through the threat of personal action against taxpayers or through systems capable of identifying suspicious transactions and patterns.
The second major proposal would raise the threshold for launching prosecution from Rs 1 crore to Rs 5 crore. A PTI source cited in the report said the change would reserve the criminal process for cases whose scale warrants it. The proposal would also narrow the offences that can trigger prosecution. Of the 24 offences currently covered by prosecution provisions, nine are proposed to be removed, 11 retained and the remaining offences softened.
This would create a sharper distinction between disputes that can be resolved through tax assessment and penalties and conduct that warrants criminal proceedings. The proposals specifically seek to keep routine disagreements over classification, valuation and input tax credit outside the criminal process. The report does not establish whether the Council will accept the changes, but the direction under consideration suggests an attempt to reduce the overlap between commercial tax disputes and criminal enforcement.
Input tax credit is another area where the proposals could alter the relationship between businesses in a supply chain. Under the reported plan, genuine buyers would be protected from losing credit when an upstream supplier fails to pay tax. Recovery action would instead be directed at the defaulting seller.
The issue reflects a basic difficulty in indirect taxation: a compliant purchaser may depend on the conduct of a supplier over whom it has limited control. If the buyer has followed the required process but remains exposed to the seller’s default, the risk can travel through the supply chain and become a cost of doing business. The proposal would attempt to place that risk more directly on the party responsible for the non-payment, although the report provides no details on the conditions that would determine whether a buyer qualifies as genuine.
The Council may also consider allowing employers to claim input tax credit on premiums paid for employee insurance. Group insurance policies currently attract 18% GST, which businesses cannot claim as credit, according to the report. The proposal would therefore address a specific business expense rather than alter the general structure of GST rates.
Small e-commerce sellers are another target of the proposed changes. The Council may consider allowing platform warehouses to be used as registered places of business in states where sellers do not maintain their own premises. Sources cited in the report said this could help around 9.5 lakh small sellers access wider markets.
The proposal recognises that online commerce has changed the physical organisation of retail. A seller may operate without a conventional shop while relying on a platform’s warehouse, fulfilment network and digital customer base. If registration rules are built around ownership or possession of a traditional business premises, they can exclude enterprises that are commercially active but spatially distributed. Allowing platform warehouses to serve as registered places of business could make the tax system more compatible with this model, subject to the final conditions adopted by the Council.
The same package reportedly includes simpler GST registration and annual returns, quarterly tax payments for some micro, small and medium enterprises, intelligence-led checks on goods vehicles and a single 5% GST rate without input tax credit for delivery of goods ordered through e-commerce platforms. These proposals cover different parts of the compliance chain: entry into the system, periodic reporting, movement of goods and the tax treatment of online delivery.
Their common feature is administrative simplification, but simplification does not automatically mean reduced oversight. Intelligence-led checks on goods vehicles, for example, would retain enforcement while attempting to focus it on risk indicators rather than routine intervention. Similarly, quarterly payments could ease the frequency of compliance for eligible MSMEs without removing their tax obligations.
Litigation reduction is a further component of the reported reform package. The Council may consider barring GST notices where the tax demand is below Rs 10,000. According to the proposal cited by the report, such cases account for around 20% of cases by number. If adopted, the measure would reduce the volume of low-value disputes entering the formal litigation and notice system.
The significance of this proposal is institutional as much as financial. A tax administration that spends substantial resources processing small-value cases can create costs for both the department and taxpayers. For smaller firms, the time spent responding to notices may be disproportionate to the amount under dispute. The available material does not indicate how the proposed bar would interact with repeated or linked demands, but the reported objective is to reduce low-value litigation rather than change the treatment of larger disputes.
The proposals also include a plan to withdraw the IGST exemption available to banks and nominated agencies importing gold, silver and platinum. This measure sits apart from the proposals aimed at easing compliance for small businesses and reducing criminal exposure. Its inclusion indicates that the Council’s agenda may combine process reforms with changes affecting specific sectors and transactions.
Taken together, the reported agenda shows that the next phase of GST reform is not only about rates. It is about the allocation of responsibility inside a tax network: between the taxpayer and the department, buyers and sellers, platforms and merchants, and administrative authorities and courts. It also raises the importance of GSTN data systems, since reduced reliance on arrest-led enforcement would require stronger capabilities to identify fraud, trace transactions and distinguish deliberate evasion from ordinary commercial error.
The central uncertainty is that these are proposals for consideration, not confirmed policy changes. The October 7 Council meeting will determine which measures move forward, whether they are modified and what implementation timelines or safeguards accompany them. Until then, the reported package offers a clear indication of the government’s reform direction but not a final set of rights or obligations for taxpayers.
The outcome will matter particularly to small enterprises, online sellers and businesses operating through complex supply chains. The evidence available in the report supports one conclusion: GST reform is entering a phase focused less on changing headline rates and more on deciding how compliance, enforcement and administrative fairness should work in practice.