GST

57th GST Council Recommendations (8 October 2026): Withdrawal of Arrest Powers, Rs 5 Crore Prosecution Threshold, Faster Refunds and Wider ITC

CA Adityavikram Banka

Quick Summary

  • The 57th meeting of the GST Council was held in New Delhi on 8 October 2026. The Ministry of Finance released its recommendations the same day (PIB Release ID 2320934).
  • Headline recommendations: complete withdrawal of arrest powers by omitting section 69 of the CGST Act, 2017; the prosecution threshold raised from ₹1 crore to ₹5 crore; the maximum general penalty under section 125 cut from ₹25,000 to ₹10,000; and a ₹10,000 minimum for issuing show cause notices under sections 73, 74 and 74A.
  • On cash flow: system-based automated refunds, refund of accumulated ITC on input services and capital goods in specified cases, and a ₹40 crore cap on pre-deposit for appeals in penalty-only cases.
  • These are recommendations. In the release’s own words, they “would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law”. Until then, the current CGST Act, rules and notifications continue to apply.

What did the 57th GST Council recommend?

The release describes the 56th meeting as focused on rate rationalisation, and the 57th meeting as making recommendations on process reforms “primarily covering registration, returns, refund” and dispute resolution, along with other reforms and changes and clarifications on GST rates. This post covers the recommendations most relevant to businesses, founders and their advisers, grouped by theme. Our earlier post on the meeting’s agenda set out the background.

Arrest, prosecution and penalties: what changes under GST?

Under the heading “Rationalization of provisions relating to arrest and prosecution”, the Council recommended:

  • Arrest: complete withdrawal of arrest powers under GST by omission of section 69 of the CGST Act, 2017.
  • Prosecution threshold: the monetary threshold for prosecution to be raised from ₹1 crore to ₹5 crore.
  • Section 132 offences: omission of clause (i) of section 132(1); deletion of the words “evades tax” in clause (e) and “or in any other manner deals with” in clause (h); amendment of clause (c) so that it covers only fraudulent availment of ITC without receipt of goods or services or without an invoice or bill; and rationalising the punishment for various offences under section 132.

On penalties and demand proceedings, the Council recommended amendments to sections 73, 74 and 74A to provide for:

  • a minimum threshold of ₹10,000 (CGST + SGST + IGST + Cess) for issuing show cause notices, so that no notice is issued where the tax involved is less than ₹10,000, with a statutory provision under which pending notices and appeals below ₹10,000 are decided as if the threshold had been in force when the notice was issued;
  • deeming the penalty amount as “charge” where the full tax is voluntarily paid with interest and penalty within the specified time limit;
  • a reduced penalty of 5% in non-fraud cases where tax with interest is paid within 30 days (section 73) or 60 days (section 74A) of the adjudication order; and
  • removal of the minimum penalty of ₹10,000 in non-fraud cases.

The Council also recommended reducing the maximum general penalty under section 125 from ₹25,000 to ₹10,000, and capping the pre-deposit for an appeal before the Appellate Authority or the Appellate Tribunal at ₹40 crore (₹20 crore CGST and ₹20 crore SGST/UTGST) where the order involves only penalty and no tax demand (provisos to sections 107(6) and 112(8)).

A circular is also recommended with guidelines to tax officers on the quality and timeliness of demand notices and orders, invoking fraud, wilful misstatement or suppression “only based on merits in each case”, and personal hearings.

GST refunds: what does the Council propose?

The Council recommended amending section 54 and the CGST Rules for system-based processing of refunds of excess cash ledger balance, zero-rated supplies and inverted duty structure, in two phases:

Phase What the release says
Phase 1 Full refund of excess balance in the electronic cash ledger sanctioned automatically. Acknowledgement or deficiency memo time limit cut from 15 days to 10 days, with deemed acknowledgement if none is issued in 10 days. For zero-rated supplies and inverted duty structure, 90% sanctioned provisionally and automatically on the basis of system risk evaluation.
Phase 2 System-based automated acknowledgement after verification; for zero-rated supplies in acknowledged cases, automated sanction of the full claim after adjusting pending dues, on the basis of system risk evaluation.

Other refund recommendations:

  • a system-readable FORM GST RFD-01, without scanned document uploads, for zero-rated and inverted duty refunds;
  • removal of the cap in rule 89(4)(C) that limits the turnover of zero-rated supply of goods to 1.5 times the value of like goods supplied domestically;
  • an explanation in section 54(14) that the ₹1,000 threshold applies to the total refund across CGST, SGST/UTGST and IGST; and
  • an amendment to section 115 making it a standalone provision on the rate of interest on refund of pre-deposit, with a clarifying circular.

Input tax credit: refunds and blocked credits

The Council recommended amending clause (ii) of the proviso to section 54(3) to allow refund of accumulated ITC:

  • Input services, inverted duty structure: available for ITC on input services availed on or after 1 November 2026.
  • Capital goods, zero-rated supplies and inverted duty structure: spread over 60 months, for ITC on capital goods availed on or after 1 April 2027.

It also recommended amending section 17(5) to remove the restrictions on ITC on, among other things, outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law.

Rule 86A is to be amended so that a taxpayer can object to the blocking of an amount in the electronic credit ledger and get a personal hearing before the officer decides.

Registration and returns

  • Amendments: rule 19 to provide for automatic acceptance of amendments to all registration particulars except those relating to the principal place of business (PPoB); for rule 14A (automatic route) registrants, PPoB amendments are also accepted automatically.
  • Cancellation on application: automatic acceptance of FORM GST REG-16 once pending returns are filed and dues paid, in two phases (Phase 1 for taxpayers who have not passed on ITC above ₹2.5 lakh in any month, or have filed GSTR-10 within time; Phase 2 for all applications).
  • Suo motu cancellation: fewer officer grounds under rule 21, and a system-based cancellation and revocation mechanism for non-filing of returns or non-furnishing of bank account details (rules 21A, 22 and a new rule 23A).
  • E-commerce sellers: a new rule 14B for small suppliers of goods through e-commerce operators in States/UTs where they have no physical presence and pass on ITC of not more than ₹2.5 lakh a month, allowing the operator’s warehouse in that State to be declared as the PPoB, with automatic registration subject to conditions.
  • Returns: an alternate mechanism to correct liability and ITC in GSTR-3B so that it aligns with GSTR-1/1A/IFF and GSTR-2B (new rules 86C and 86D, rule 60(6A) for IMS, rule 61(1A) and (1B), DRC-03 changes). The Council recommended that it may be brought into force from the return of April 2027, after a time-bound public consultation.
  • Late fee: waiver of late fee on a delayed section 39(1) return for taxpayers with annual turnover up to ₹5 crore in the preceding financial year, if the return is filed by the end of the month in which it was due.
  • E-invoicing: extended to reverse-charge supplies received from unregistered persons and to import of services, for taxpayers with aggregate annual turnover of ₹5 crore and above.

The Council also approved in principle a concept note for an optional Annual Return Quarterly Payment (ARQP) scheme for taxpayers with aggregate turnover up to ₹5 crore in the preceding financial year who make only B2C supplies.

Exports of services and e-way bills

  • Distinct establishments: omission of section 2(6)(v) of the IGST Act, so a supply to a foreign office or branch of the same person can qualify as an export of services.
  • Place of supply: omission of section 13(3)(a) of the IGST Act, so services on goods made physically available by the recipient fall under the default rule in section 13(2), the location of the recipient.
  • SEZ/FTWZ delivery: an explanation to section 16(1) of the IGST Act treating goods sold to an overseas buyer but delivered in an SEZ/FTWZ, against payment in convertible foreign exchange or permitted rupees, as a supply to the SEZ/FTWZ.
  • Intellectual property: Schedule II to treat transfer of title in IPRs, temporary or permanent, uniformly as a supply of services.
  • E-way bills: interception only on specific intelligence with authorisation of an officer not below Joint Commissioner; no interception in transit States where neither supplier nor recipient is located or registered (unless no e-way bill or document is carried); and no confiscation under section 130 of goods or conveyances in transit.

Rate changes and clarifications (selected)

  • Option to pay 5% GST with restricted ITC on passenger transport and rental of motor vehicles with operators using electric vehicles, where battery charging cost is included in the consideration.
  • Delivery services (other than courier and postal) supplied through e-commerce operators: brought under section 9(5) where the supplier is not liable to register under section 22(1), at 5% without ITC.
  • Specified plastic, e-waste and tyre scrap and used cooking oil supplied by unregistered to registered persons brought under reverse charge, with TDS at 2% on B2B supplies of the specified waste and scrap.
  • Self-certification by the head of an institution that its activity is research and development, not consultancy, for the exemption under Entry 44A of Notification 12/2017-Central Tax (Rate).

What should businesses and CAs do now?

  1. Keep applying the current law. Nothing in the release is in force until the CGST/IGST Act amendments, rules, notifications or circulars are issued. Arrest, prosecution, penalty and pre-deposit provisions apply as they stand today.
  2. Flag pending matters. List show cause notices and appeals involving tax below ₹10,000, and penalty-only appeals with large pre-deposits, so they can be reviewed when the amendments are notified.
  3. Note the dates the Council attached. Input services ITC refunds (inverted duty) are recommended for ITC availed on or after 1 November 2026; capital goods ITC refunds for ITC availed on or after 1 April 2027; the returns mechanism from the April 2027 return.
  4. Exporters of services with foreign branches should track the IGST amendment on distinct establishments before changing invoicing or refund claims.
  5. Track CBIC. Read each notification, circular and amendment as it is issued, and apply it from the date it states.

For the current return framework, see our post on GSTR-3B hard-locking and IMS.

Sources

  • Source: Press Information Bureau, Ministry of Finance, “Recommendations of the 57th Meeting of the GST Council”, 8 October 2026, Release ID 2320934, pib.gov.in.

Get expert guidance

Facing a GST notice, a pending appeal or a stuck refund, and want to know where these recommendations could matter for you? Tax Update India can help. Talk to an expert.

Disclaimer: This article is for general information only and reflects the law as on the date of publication. It is not legal or tax advice. Please consult a qualified professional before acting on it.

CA Adityavikram Banka
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