GST Arrests to End? 57th GST Council's Section 69 Removal, Rs 5 Crore Prosecution Limit and ITC Relief, Explained

The 57th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman on 8 October 2026, recommended the biggest softening of GST's criminal provisions since the tax began in 2017. On 1 November, industry body CII called the package a "landmark, trust-based reform." Here is what was decided and, just as important, what is not yet law.

The 60-second version

• Arrest: Omit Section 69 of the CGST Act, removing GST arrest powers.
• Prosecution: Raise the Section 132 threshold to Rs 5 crore and narrow the list of offences.
• Penalties: General penalty cut from Rs 25,000 to Rs 10,000; no notice for tax disputes under Rs 10,000.
• Input tax credit: Several blocked credits removed, and new refunds of accumulated ITC.
• Refunds: 90% provisional refunds sanctioned automatically for zero-rated and inverted duty claims, based on risk checks.
• Status: These are recommendations. Most need amendments to the CGST and IGST Acts, rules and notifications before they apply.

The big one: arrest and prosecution

Item	Now	Recommended
Arrest power (Section 69)	Officers can arrest for specified offences	Section omitted
Prosecution threshold (Section 132)	Rs 1 crore in many reports (see note)	Rs 5 crore
Offences under Section 132(1)	Broad list	Some clauses pruned or narrowed
Sentencing	Fixed bands	Rationalised

Note on the current threshold: most reports, including CII's, describe the move as Rs 1 crore to Rs 5 crore. Some tax experts say the 2023 Finance Act already raised the limit to Rs 2 crore for most offences, with Rs 1 crore kept for fake-invoice cases. Either way, the proposed limit is Rs 5 crore.

The Council also recommended narrowing Section 132(1): removing one clause outright, deleting the words "evades tax" from another, and limiting the fraudulent ITC offence to credit taken without receiving goods or services, or without a valid invoice.

What it does not mean: a higher prosecution threshold does not cancel tax demands below Rs 5 crore. Tax, interest and penalties can still be recovered. And until the CGST Act is amended, Section 69 still applies.

Penalties and notices

• General penalty (Section 125): cut from Rs 25,000 to Rs 10,000.
• Non-fraud cases: a 5% penalty if tax and interest are paid within 30 days (Section 73) or 60 days (Section 74A) of the order, with the Rs 10,000 minimum removed.
• Small disputes: no show-cause notice if total tax involved is under Rs 10,000.
• Appeals: pre-deposit for penalty-only orders capped at Rs 40 crore (Rs 20 crore CGST plus Rs 20 crore SGST).

Input tax credit relief

The Council recommended removing these items from the blocked credit list in Section 17(5):

• Outdoor catering
• Health and life insurance
• Telecom towers
• Pipelines outside factory premises
• Free samples
• Goods destroyed or written off because of legally required shelf-life expiry

It also proposed refunds of accumulated ITC on:

• Input services in inverted duty cases, for credit taken on or after 1 November 2026.
• Capital goods used for zero-rated supplies and inverted duty cases, spread over 60 months, for credit taken on or after 1 April 2027.

Faster refunds and simpler registration

• Excess cash ledger balance: full refund sanctioned automatically.
• Zero-rated and inverted duty claims: 90% sanctioned provisionally and automatically, based on system risk checks.
• Acknowledgement time: cut from 15 days to 10 days, with deemed acknowledgement if officers miss it.
• Registration amendments: most changes accepted automatically.
• Small e-commerce sellers: simplified registration in states where they have no physical office, using an e-commerce warehouse as the place of business.

Relief for small businesses

• Late fee waived for businesses with turnover up to Rs 5 crore if a late return is filed by the end of the month it was due.
• In-principle approval for an optional annual return with quarterly payment for B2C businesses with turnover up to Rs 5 crore.

Fewer roadside stops for trucks

Goods in transit could be intercepted only on specific intelligence with approval from a Joint Commissioner or above, and generally not in transit states. Confiscation under Section 130 would not apply to goods in transit.

When does it take effect?

The recommendations become law only through amendments to the CGST and IGST Acts, changes to the CGST Rules, and notifications and circulars. The Act changes, including the removal of Section 69 and the new Section 132 threshold, need Parliament's approval (state GST laws also need matching changes). No date for the amending bill has been announced. Specific dates mentioned so far are 1 November 2026 (input services ITC refunds) and 1 April 2027 (capital goods refunds and a new return-matching mechanism).

Why it matters

Business groups have long argued that GST arrests and prosecutions were used too readily in disputes that were really about interpretation or paperwork. Moving these cases from criminal law to civil recovery is meant to cut harassment and litigation. The government still keeps strong tools for fake invoice and fraudulent ITC rackets, which remain covered.

Sources: Recommendations of the 57th GST Council meeting as summarised by CAclubindia and TaxGuru (October 2026), and CII's statement of 1 November 2026. This is a general explainer, not tax advice. Check the official notifications and the amending law before relying on any change.