GST Council may consider judicial approval for arrests, higher prosecution threshold

The GST Council is likely to consider a proposal to remove the power of tax officials to authorise arrests and require judicial approval for arrests under the GST law at its October 7 meeting, as part of the government’s proposed Next-Generation GST reforms.

The proposal would also raise the threshold for launching criminal prosecution from Rs 1 crore to Rs 5 crore, reserving prosecution for cases involving more significant tax evasion or fraud.

Prosecution provisions would be narrowed so that disputes involving classification, valuation or input tax credit (ITC) arising from differing interpretations of tax rules are not treated as criminal offences.

The proposed changes would not affect the government’s powers to recover unpaid taxes or impose interest and penalties. Taxpayers found to have short-paid tax or wrongly claimed ITC would continue to face recovery proceedings and other statutory consequences. Certain offences could also be settled through compounding on payment of the prescribed tax, interest and penalty.

The proposals cover 24 offences under the GST prosecution provisions. Nine are proposed to be removed, while 11 would be retained in their existing form. The minimum sentence provision could also be removed, with courts given the option of imposing a fine in every case. The maximum sentence in the middle category could be reduced from three years to two years.

The Council may also consider waiving late fees for small taxpayers and rationalising penalties.

AMRG Global Managing Partner Rajat Mohan described the proposals as a shift from arrest-led deterrence towards technology-led detection and civil-liability-based enforcement, with greater reliance on GSTN data to detect fraud.

The reforms follow the September 2025 GST rate rationalisation and are part of a wider package that could include easier registration, faster refunds, simpler ITC procedures and changes to show-cause notices and penalties.

If approved, the proposals would require amendments to the GST law and would have to go through the legislative process before taking effect.