The Goods and Services Tax (GST) Council is likely to consider a sweeping set of process and enforcement reforms at its October 7 meeting, as the government moves into the next phase of its GST 2.0 agenda aimed at making compliance simpler, reducing litigation and making tax enforcement more proportionate.
The proposals under consideration include taking away the power of GST officers to arrest taxpayers without judicial authorisation, raising the threshold for prosecution from Rs 1 crore to Rs 5 crore, protecting input tax credit (ITC) of genuine buyers and allowing businesses to claim ITC on GST paid on employee insurance premiums.
The Council is also likely to consider simplifying GST registration and return filing, reducing low-value litigation, making movement of goods more predictable and withdrawing the IGST exemption currently available on imports of gold, silver and platinum by specified banks and nominated agencies.
The proposals come after the major GST rate rationalisation implemented in September 2025, which simplified the tax structure around a 5% merit rate and an 18% standard rate, with a 40% rate for select luxury and demerit goods.
The next phase of GST 2.0 is expected to focus more on the administration of the tax than on rates, with the government seeking to reduce compliance costs and disputes while relying more heavily on technology and data-driven enforcement.
GST Arrest Powers May Go, Prosecution Threshold Could Rise To Rs 5 Crore
One of the most significant proposals before the Council is a possible overhaul of GST enforcement. Under the current law, Section 69 of the Central GST Act allows the Commissioner, subject to statutory conditions and reasons to believe that specified offences have been committed, to authorise a GST officer to arrest a person.
The proposed changes could remove this power from tax officials. Any arrest would instead require judicial authorisation.
The government is also considering raising the threshold for launching prosecution from Rs 1 crore to Rs 5 crore. The move would ensure that criminal proceedings are reserved largely for serious cases involving significant tax evasion or fraud.
The proposals also seek to narrow the scope of prosecution provisions so that routine disputes over classification, valuation or input tax credit are not treated as criminal offences merely because taxpayers and tax authorities have different interpretations.
Of the 24 offences currently covered by the prosecution provisions, nine could be removed, 11 retained and two dozen provisions otherwise softened, according to the proposals under consideration. The minimum sentence may also be removed, giving courts greater flexibility, while the maximum sentence in the middle band could be reduced from three years to two.
The government would, however, retain its powers to recover tax, levy interest and impose financial penalties. Serious cases involving deliberate evasion or fraud could continue to be prosecuted through courts.
The proposed shift is aimed at moving GST enforcement away from an arrest-led approach towards technology-led detection and civil recovery.
Why The Government Wants To Change GST Arrest Rules
When GST was introduced in July 2017, the power to arrest was seen as an important deterrent against fake invoicing, fraudulent input tax credit and tax evasion. The tax administration’s ability to match invoices and identify fraudulent transactions was relatively limited in the early years of GST.
The GST system has since evolved, with invoice-level information, input tax credit records and return data providing tax authorities with greater visibility into transactions.
The government therefore believes that technology and data analytics can increasingly detect fraudulent credit and tax evasion without relying on arrest as the primary enforcement tool.
For businesses, the proposed changes could reduce the risk of a tax dispute escalating into criminal proceedings before the underlying tax liability is finally settled.
Genuine Buyers May Get Protection On Input Tax Credit
Another major proposal seeks to protect genuine businesses that claim input tax credit on the basis of valid invoices but later face disputes because the supplier has failed to pay the tax. Under the proposed framework, a genuine buyer with a valid invoice could retain the ITC, while recovery action would be directed at the defaulting supplier.
The move could address one of the biggest areas of GST litigation and uncertainty, particularly for companies dealing with small or newly established vendors.
The broader objective is to ensure that businesses do not lose legitimate credit because of a supplier’s subsequent default when there is no evidence that the buyer was involved in the tax evasion.
Employers May Get ITC On Employee Insurance
The GST Council is also likely to consider allowing employers to claim input tax credit on premiums paid for life and health insurance provided to employees. Currently, GST is exempt when individuals buy life or health insurance for themselves or their families. However, group insurance purchased by employers for employees is currently subject to 18% GST, with businesses generally unable to claim ITC on the premium.
Allowing credit could reduce the effective cost of employee insurance for companies and potentially encourage wider coverage among organised-sector workers.
The proposal is also expected to benefit the insurance industry by making employer-provided insurance more affordable.
Small E-Commerce Sellers May Get Easier GST Registration
The Council may also consider changes to GST registration rules for small sellers using e-commerce platforms. Under the proposal, a small seller could use an e-commerce platform’s warehouse as its registered place of business in a state where it does not maintain its own premises.
The seller would need to establish a genuine presence in at least one state, where physical verification and Aadhaar authentication would be completed. Registrations in other states could then be obtained with the consent of the e-commerce platform without further intervention by tax officers.
The proposal could help around 9.5 lakh small sellers access customers across the country without having to establish physical offices in every state where their goods are stored.
It could also create greater tax parity between different e-commerce business models.
GST Registration And Returns To Become Simpler
The GST registration system itself is proposed to be redesigned so that businesses can complete applications correctly at the first stage. The proposed system would provide guidance at each step, show applicants only the sections relevant to them and generate a customised list of documents required for submission.
Businesses could also be allowed to carry over information from an existing registration in another state. Those seeking registrations in multiple states may be able to apply for them together. The system could also determine the appropriate tax office based on the location of the business.
Other proposals include a unified GST registration documentation process, simpler annual return filing and a quarterly tax payment option for MSMEs supplying only to consumers.
GST Notices Below Rs 10,000 May Be Scrapped
The government is also looking to reduce litigation over small tax demands. The Council may consider barring GST notices where the tax demand is below Rs 10,000. Such cases account for around 20% of cases by number but involve only a negligible amount of tax, according to the proposal. The threshold could also apply to pending cases at the adjudication or appeal stage.
For demands above Rs 10,000, tax officers may first have to issue an intimation and give taxpayers an opportunity to respond before issuing a formal show-cause notice.
The proposals also seek common standards for drafting and serving notices, distinguishing fraud from ordinary short-payment, conducting hearings and issuing reasoned orders.
Goods Movement May Get More Predictable
The GST Council may also consider intelligence-led checks on goods in transit. Under the proposed system, vehicles carrying goods could be stopped only on the basis of specific prior authorisation from a senior officer and, generally, only by the state of origin.
Exceptions could apply in cases where documents are missing or tax is payable by the buyer. The objective is to reduce repeated stoppages of vehicles crossing state borders, thereby cutting transit times and freight costs.
The reform could be particularly significant for businesses that depend on time-sensitive movement of goods across multiple states.
Single 5% GST On E-Commerce Deliveries
Another proposal under consideration is a single 5% GST rate without input tax credit for the delivery of goods ordered through e-commerce platforms. The measure is part of the broader attempt to simplify the treatment of transactions in the rapidly expanding digital commerce ecosystem.
Gold, Silver And Platinum Imports May Lose IGST Exemption
The GST Council is also likely to consider withdrawing the IGST exemption available to banks and nominated agencies importing gold, silver and platinum. Currently, these precious metals attract 3% IGST, but specified banks and nominated agencies are exempt from paying the tax when importing them.
The exemption was introduced in 2017 when the import and distribution of precious metals were more tightly canalised. With the development of bullion exchanges and changes in the market structure, the government is now considering bringing these entities on a more equal tax footing.
The move also comes amid concerns over India’s precious-metal import bill and the pressure such imports can put on the country’s foreign exchange position.
Gold imports rose 3.38% to $17.47 billion during April-August 2026-27, while silver imports declined 8.81% to $1.74 billion.
A Shift From Control To Compliance
Taken together, the proposals signal a broader change in the government’s approach to GST administration. The first phase of GST focused heavily on creating a common indirect tax system and preventing revenue leakage. The next phase is increasingly focused on reducing friction for compliant taxpayers while using technology to identify deliberate fraud.
The proposed reforms seek to make registration and return filing easier, protect legitimate input tax credit, reduce low-value litigation, simplify movement of goods and reserve criminal prosecution for more serious cases.
The Centre and state GST officers’ working group has met more than eight times over the past year, while the GST National Coordination Committee has held three meetings to firm up the proposed process reforms.
If approved by the GST Council, the proposals will require changes to the GST law and rules before they can take effect.
