GST reforms approved by the GST Council will remove tax officers’ powers to arrest individuals under the GST law, raise the prosecution threshold from Rs 1 crore to Rs 5 crore and reduce the general penalty from Rs 25,000 to Rs 10,000. The changes were cleared at the Council’s 57th meeting on Thursday, October 8, while existing GST rates were left unchanged.
Finance Minister Nirmala Sitharaman said the reforms would be implemented from April 1, 2027, the beginning of the next financial year. The Council also decided that GST rate-related matters would be considered once a year at a meeting dedicated exclusively to tax rates.
Under the approved enforcement changes, prosecution will be initiated only when the relevant amount reaches Rs 5 crore. The provision for minimum punishment has also been removed, leaving decisions on fines, imprisonment or both to judicial discretion. For late returns, mistakes and delayed payments, taxpayers will face tax recovery, interest and proportionate penalties without additional punitive action for those defaults.
The Council approved faster processing of GST refunds. The time limit for acknowledging a refund claim has been reduced from 15 days to 10 days. Claims will be deemed acknowledged if the tax authority does not issue an acknowledgement or deficiency memo within that period. Following risk assessment, 90% of eligible refund claims will be sanctioned automatically, with orders issued within three working days instead of seven. Refunds of excess balances in electronic cash ledgers will also become fully automatic.
Small businesses and micro-enterprises are among the main beneficiaries of the compliance changes. The Council approved in principle an optional annual return scheme for businesses with turnover of up to Rs 5 crore that supply exclusively to consumers. Eligible taxpayers would file returns annually while continuing to pay GST quarterly. The proposal could ease recurring compliance requirements for small businesses operating in urban markets, although its final implementation framework will determine eligibility and procedure.
Small sellers using e-commerce platforms will also be allowed to use a platform operator’s warehouse as their principal place of business in another state, subject to conditions. This would remove the need to establish separate physical premises in every state where goods are stored or sold. GST registration and amendment processes are also expected to move towards automated approvals and technology-led procedures. The Council approved a Rs 10,000 minimum threshold for issuing show-cause notices.
The package includes several measures for exporters and businesses. Input tax credit was approved for health and life insurance purchased by businesses for employees, telecommunications towers, certain pipelines, free samples and specified expired stock. Refunds under the inverted duty structure were extended to input services, while the exclusion of plant and machinery from refunds was removed for exporters and eligible businesses. Refund eligibility for input services will apply to credit availed on or after November 1, 2026, while the plant and machinery change will apply to credit availed on or after April 1, 2027.
The Council also approved clarifications for export services delivered through overseas branches and work undertaken in India on goods belonging to foreign clients. Physical checks of goods in transit will be restricted to cases involving specific intelligence and prior authorisation from an officer not below the rank of Joint Commissioner. Only the originating and destination states will be permitted to inspect goods in transit, reducing repeated checks along transport routes.
On input tax credit reversals caused by supplier defaults, the Council decided to constitute a committee of officers. The committee will submit its findings within three months for consideration at the next Council meeting.
The Finance Ministry said taxable supplies had risen 25.8%, from Rs 40.19 lakh crore to Rs 50.58 lakh crore a month, following the introduction of the two-rate structure. It also said the effective tax rate on domestic supplies had declined from 14.55% to 13.13%, while GST revenue grew 11% in FY2026-27 compared with the previous year. No change was announced to the existing GST rate structure.
