GST Council Removes Officer Arrest Powers in Major Reform

The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, approved a comprehensive suite of 'GST 2.0' reforms during its 57th meeting on October 8, 2026, in New Delhi. The reforms shift the indirect tax regime from an officer-driven to a system-driven model, prioritizing a trust-based administration over criminal enforcement.

Central to the overhaul is the removal of arrest powers for tax officers, with arrests for established criminality now handled by enforcement agencies through court-monitored processes. The Council raised the criminal prosecution threshold from Rs 1 crore to Rs 5 crore and reduced the maximum general penalty from Rs 25,000 to Rs 10,000. Additionally, the Council mandated a monetary threshold of Rs 10,000 for issuing show-cause notices, requiring the withdrawal of all pending notices below that amount.

To improve business liquidity, the Council streamlined refund processes, reducing the acknowledgment period to 10 days and targeting the release of 90% of refunds within three days of acknowledgment. Input Tax Credit (ITC) eligibility was expanded to include health and life insurance, telecommunication towers, and expired stock. To provide greater predictability for capital spending, tax rate changes will now be considered only once per fiscal year, effective April 1.

While state leaders generally welcomed the measures as a relief for the business community, the Government of Jharkhand opposed the decriminalization efforts, citing the fiscal costs borne by mineral-rich states. The Council also proposed institutional reorganization to consolidate its committees into a streamlined three-tier structure to simplify industry representations.