The 57th Goods and Services Tax (GST) Council has approved a set of measures aimed at easing compliance for businesses, reducing tax litigation and rationalising enforcement provisions, including a proposal to curb the arrest powers of tax authorities, according to sources.
The Council has also approved raising the monetary threshold for prosecution of offenders. The statutory minimum amount of tax evasion or wrongful input tax credit (ITC) required to launch prosecution has been raised to Rs 10 crore from Rs 5 crore earlier, sources said.
The measures include allowing ITC on employers’ expenditure on insurance for employees, introducing a Rs 10,000 threshold for show-cause notices and reducing GST to 5% on delivery services provided by delivery partners who are not registered under GST and operate through e-commerce operators, sources said.
The decisions form part of the next phase of GST reforms, with the focus shifting from the rate rationalisation undertaken in September 2025 to improving tax administration, reducing disputes and making compliance less burdensome for businesses.
The proposal concerning arrest powers is among the most consequential enforcement-related measures under consideration in the GST reform process. It seeks to address concerns raised by businesses over the possibility of coercive action during tax investigations.
Under Section 69 of the Central Goods and Services Tax (CGST) Act, the Commissioner can authorise the arrest of a person where the statutory conditions relating to specified GST offences are met. These provisions have been particularly relevant in cases involving alleged fraudulent input tax credit claims, fake invoicing and significant tax evasion.
The proposed changes seek to shift the emphasis towards proportionate enforcement, with criminal proceedings reserved for serious offences and routine compliance defaults dealt with through tax recovery, interest and penalties, as applicable.
Businesses and tax professionals have argued that the possibility of arrest can create uncertainty for company executives and business owners, particularly when disputes involve interpretation of tax provisions, eligibility for credit or the classification of transactions.
Any change to statutory arrest provisions would require the necessary legislative amendments and clarification of the enforcement framework.
ITC on employee insurance expenses: Relief for employers
The Council has also approved input tax credit on employers’ expenditure on insurance for employees, a move that could reduce the effective cost of providing employee benefits.
Businesses have long sought greater clarity and flexibility on ITC eligibility for group health and life insurance policies. The inability to claim credit on eligible business expenses can increase the effective cost of employee insurance, particularly for companies that provide group coverage as part of their compensation packages.
Allowing ITC would enable eligible employers to offset GST paid on such insurance expenses against their output tax liability, subject to the applicable conditions.
The measure could benefit companies across sectors, including manufacturing, information technology, financial services and other service industries with sizeable workforces.
It may also improve the economics of providing employee insurance, although the extent of the benefit will depend on the final eligibility conditions and implementation rules.
Rs 10,000 threshold for show-cause notices
The Council has approved a Rs 10,000 threshold for GST show-cause notices, aimed at reducing the burden of low-value disputes on taxpayers and the tax administration.
Show-cause notices are a key part of the GST adjudication process, allowing tax authorities to communicate proposed demands and giving taxpayers an opportunity to respond. However, a large number of relatively small disputes can add to administrative costs, compliance requirements and litigation.
A monetary threshold could help the department focus its resources on cases involving more substantial revenue implications while reducing the need to pursue low-value matters.
The final impact will depend on how the threshold is defined, including whether it applies to the tax amount in dispute, the circumstances in which a notice can be issued and any exceptions prescribed under the rules.
For smaller businesses, which often have limited resources to handle tax proceedings, reducing the number of low-value notices could help lower compliance costs and free up management time.
GST on delivery services by unregistered riders reduced to 5%
The Council has also approved a 5% GST rate for delivery services provided by unregistered delivery partners through e-commerce platforms.
The move addresses a long-standing issue concerning the tax treatment of delivery services supplied through e-commerce operators, particularly where individual delivery partners operate below the GST registration threshold.
