GST Arrest and Prosecution Reforms 2026: An Overview
The 57th GST Council meeting, held on 8 October 2026, recommended significant changes to the provisions governing arrest and prosecution under the Central Goods and Services Tax (CGST) Act, 2017.
The recommendations aim to rationalise criminal enforcement under GST while retaining deterrence against serious tax evasion and fraudulent activities.
The key proposals include:
-
Complete withdrawal of arrest powers under GST through the proposed omission of Section 69 of the CGST Act.
-
Increasing the monetary threshold for prosecution from ₹1 crore to ₹5 crore.
-
Removing or narrowing certain offences under Section 132(1).
-
Rationalising imprisonment terms for specified offences.
-
Giving courts discretion to impose imprisonment, a fine, or both, as applicable.
-
Removing the prescribed minimum imprisonment of six months.
Important: These are recommendations of the GST Council. They should not be treated as implemented amendments unless the relevant legislative changes have formally come into force.
1. Proposed Removal of Arrest Powers Under GST
The GST Council recommended the complete withdrawal of arrest powers under GST by omitting Section 69 of the CGST Act, 2017.
Section 69 currently provides the statutory framework under which the Commissioner may authorise arrest in specified circumstances involving offences under GST law, subject to the applicable legal conditions.
If the proposed amendment is enacted as recommended, the arrest powers under the GST law would be withdrawn.
However, the proposal does not mean that every form of GST enforcement or criminal prosecution would automatically disappear. Proceedings under other applicable legal provisions may remain relevant depending on the facts and circumstances.
2. Increase in the Prosecution Threshold from ₹1 Crore to ₹5 Crore
The Council recommended increasing the monetary threshold for prosecution from ₹1 crore to ₹5 crore.
According to the Council's FAQ, prosecution under Section 132(1) would be available where the amount of evaded tax exceeds ₹5 crore, compared with the existing threshold of ₹1 crore described in the FAQ.
This proposed change is intended to focus criminal prosecution on cases involving larger amounts while retaining enforcement against serious offences.
The threshold should not be interpreted as a general exemption from GST liability. Tax, interest, penalties, recovery proceedings and other consequences may still apply under the relevant provisions even where the prosecution threshold is not met.
3. Proposed Changes to Specific Offences Under Section 132
The Council recommended changes to certain clauses of Section 132(1) of the CGST Act, 2017.
Removal of Clause (i)
The Council recommended omitting clause (i), which concerns certain activities involving the supply or dealing in services in contravention of the Act.
The stated objective is to remove an offence considered difficult to quantify and potentially open to subjective interpretation.
Narrowing of Clause (e)
The Council recommended deleting the words “evades tax” from clause (e).
The proposed change would narrow the provision so that it focuses on fraudulently obtaining a refund, rather than retaining the broader wording relating to tax evasion.
Narrowing of Clause (h)
The Council recommended deleting the words “or in any other manner deals with” from clause (h).
The intention is to confine the offence to the specific acts listed in the provision rather than retaining the broader expression.
Amendment to Clause (c)
The Council recommended amending clause (c) to cover fraudulent availment of ITC without receipt of goods or services, or without an invoice or bill.
The proposal is intended to define the relevant offence more precisely.
These changes concern the scope of criminal offences. They should not be interpreted as removing the underlying GST compliance obligations or automatically making otherwise ineligible ITC admissible.
4. Proposed Rationalisation of Imprisonment Terms
The Council recommended rationalising the maximum imprisonment terms for specified offences under Section 132.
According to the official FAQ, the proposed punishment structure is:
| Amount involved | Proposed maximum punishment |
|---|---|
| Exceeds ₹10 crore | Imprisonment up to five years, or fine, or both |
| Exceeds ₹5 crore but does not exceed ₹10 crore | Imprisonment up to two years, or fine, or both |
The applicable offence, statutory conditions and final wording of the enacted amendment will determine the punishment in a particular case.
These proposed limits should not be treated as the current punishment applicable to every GST offence.
5. Proposed Removal of Mandatory Minimum Imprisonment
The Council recommended changing the punishment structure from “imprisonment and fine” to “imprisonment or fine or both” for the relevant offences.
It also recommended removing the minimum imprisonment of six months under Section 132(3).
If enacted as recommended, the change would give courts greater discretion to determine the appropriate punishment within the applicable statutory framework.
The proposal does not mean that imprisonment would be unavailable in every case. The court's decision would depend on the offence, applicable law and circumstances of the case.
6. Will GST Tax Demands and Penalties Also Be Removed?
No. The proposed changes relate primarily to arrest powers and criminal prosecution provisions.
They do not, by themselves, abolish GST tax demands, interest, civil penalties, recovery proceedings, adjudication or other statutory compliance requirements.
For example, a taxpayer may still face a demand under the applicable provisions of the CGST Act even where the facts do not meet the proposed monetary threshold for prosecution.
Taxpayers should therefore distinguish between:
-
Tax liability and recovery proceedings.
-
Civil penalties under the GST law.
-
Criminal prosecution under Section 132.
-
Arrest powers under Section 69.
Each operates under its own legal framework.
7. What Should Taxpayers and Businesses Do Now?
Until the recommended legislative amendments are formally implemented, businesses should continue complying with the applicable GST law.
They should:
-
Maintain accurate books of account and GST records.
-
Verify ITC eligibility and retain supporting invoices and documents.
-
Ensure that refund claims are genuine and supported by evidence.
-
Respond to GST notices within the prescribed timelines.
-
Obtain appropriate legal advice where a matter involves allegations of fraud, fraudulent ITC or possible prosecution.
-
Monitor official notifications and legislative amendments before relying on the proposed changes.
Conclusion
The 57th GST Council meeting recommended significant reforms to GST arrest and prosecution provisions, including withdrawal of arrest powers, a higher prosecution threshold, narrower offence definitions and greater judicial discretion over punishment.
If enacted as recommended, these changes could alter the criminal enforcement framework under GST and provide greater clarity regarding the offences that attract prosecution.
However, the recommendations do not automatically change the law. Taxpayers should verify the relevant legislative amendments and their commencement dates before relying on these proposals in any ongoing dispute or legal proceeding.
Source: Ministry of Finance, Government of India — FAQs on rationalisation and decriminalisation of arrest and prosecution provisions in GST, published on 9 October 2026.