GST Council Proposes Curbs on Arrest Powers, Lower Penalties to Ease Business Compliance

The Goods and Services Tax (GST) Council has recommended a series of measures to make tax administration less intrusive for businesses, including curbs on arrest powers, reduced penalties and stricter conditions for stopping vehicles transporting goods.

Union Finance Minister Nirmala Sitharaman said businesses must be treated with trust and that compliance processes should not become excessively intrusive. The proposed changes follow concerns from industry groups that stringent punitive provisions under GST have affected business sentiment and sometimes resulted in alleged overreach by tax authorities.

Under the recommendations, tax officers will be permitted to stop vehicles carrying goods only if they belong to the state of the supplier or recipient, and only when supported by specific intelligence and proper authorisation.

The Council has also proposed removing arrest powers from tax officers, with prosecution reserved for cases involving criminality. However, several states, including Maharashtra, Gujarat, Uttar Pradesh, Karnataka and Andhra Pradesh, had reportedly expressed reservations about completely removing arrest powers during discussions ahead of the Council meeting.

Some states argued that eliminating pre-prosecution arrests could weaken enforcement in serious cases. They proposed retaining a graded mechanism that would allow civil arrest in cases involving significant violations, while avoiding arrests in routine matters.

The Council has further recommended reducing the maximum general penalty from ₹25,000 to ₹10,000. For non-fraud cases, it has proposed a lower penalty of 5% and removal of the minimum penalty requirement of ₹10,000.

Changes have also been proposed in the treatment of input tax credit (ITC) refunds. Refunds relating to capital goods will be spread over 60 months. The change concerning capital goods is scheduled to take effect from April 2027, while the revised treatment for input services can be availed from November 1, 2026.

The Council meeting was reportedly postponed by a day amid discussions over the proposed reforms, particularly the removal of arrest powers.

The recommendations seek to balance business-friendly tax administration with effective enforcement against serious violations. The measures are expected to reshape compliance procedures once implemented.