GST Council Scraps Arrest Powers, Hikes Prosecution Cap to ₹5 Crore

Taxpayers facing indirect tax scrutiny are set for major relief after the GST Council recommended eliminating arrest provisions under GST entirely and raising the prosecution threshold from ₹1 crore to ₹5 crore. Meeting in New Delhi under Union Finance Minister Nirmala Sitharaman, the Council also proposed slashing the general penalty from ₹25,000 to ₹10,000. The moves signal a decisive pivot toward decriminalizing minor tax defaults and curtailing coercive enforcement against commercial enterprises.

Cash-strapped exporters and manufacturers will see working capital unlocked through an automated refund mechanism. Under the phased rollout, excess balances in the electronic cash ledger will be refunded automatically by the system without tax officer intervention. For zero-rated supplies and inverted duty structures, 90% of eligible refund claims will be sanctioned provisionally by the portal, backed by system-driven risk profiling.

Small e-commerce vendors also secured a long-awaited operational overhaul. The Council approved inserting Rule 14B into the CGST Rules, allowing sellers who pass on less than ₹2.5 lakh monthly credit to operate in other states simply by declaring an operator's local warehouse as their principal place of business. This eliminates the expensive requirement to maintain physical branches across state borders.

Broader procedural updates target routine compliance friction. Registration amendments outside primary business premises will now process automatically, while system-driven cancellations and revocations will replace discretionary officer actions. A revamped return rectification framework designed to curb ITC mismatches will open for public consultation before taking effect in April 2027.