GST Council Meeting 2026: Key Recommendations on GST Prosecution, Refunds and Input Tax Credit

Introduction

The 57th Goods and Services Tax (GST) Council meeting was held on 8 October 2026 in New Delhi under the chairpersonship of Smt. Nirmala Sitharaman, Union Minister for Finance and Corporate Affairs. According to the PIB release, the Chief Ministers of Delhi, Goa, Haryana, Jammu & Kashmir, Karnataka, Kerala, Maharashtra and Meghalaya attended. So did the Deputy Chief Ministers of Manipur and Telangana, the Finance Ministers of States/UTs with legislature, and senior officials of the Ministry of Finance and CBIC.

The Council’s 56th meeting last year focused on rate rationalisation and reduction. The 57th focused on process reforms covering registration, returns, refunds and adjudication, along with clarifications on the applicability of GST to certain goods and services and other trade-facilitation measures. No GST rates were changed. The Finance Minister announced that rate changes will be taken up only once a year, at a dedicated meeting, with effect from 1 April.

The PIB release states that FAQs are being issued. It also notes that the recommendations will have legal force only when given effect through circulars, notifications and law amendments.

Recommendations

The key recommendations of the GST Council, as reflected in the PIB release, are summarised below under their respective subject heads. These recommendations will take effect only upon the issuance of the requisite notifications, circulars, amendments to the Rules or amendments to the applicable legislation, as the case may be.

Arrest, prosecution and punishmentComplete withdrawal of arrest powers by omitting section 69 of the CGST Act, 2017.

Monetary threshold for prosecution raised from ₹1 crore to ₹5 crore.
The Council recommended narrowing section 132(1) of the CGST Act by omitting clause (i), deleting “evades tax” from clause (e) and “or in any other manner deals with” from clause (h), limiting clause (c) to fraudulent ITC availment without receipt of goods or services or without an invoice or bill, and rationalising the punishments under section 132.
The FM said at the press conference that the minimum punishment will be removed, leaving punishment to judicial discretion.

2. Dispute resolution and penalties

A circular on the quality and timeliness of demand notices and orders, invoking fraud, wilful misstatement or suppression only on merits, and natural justice, including personal hearings.
Amending sections 73, 74 and 74A so that no show cause notice is issued where the tax involved is below ₹10,000 (CGST + SGST + IGST + Cess), with pending notices and appeals below that amount to be decided as if the threshold had applied. It also recommended that a penalty be deemed a “charge” where tax, interest and penalty are paid voluntarily within the specified time, that a reduced penalty of 5% apply in non-fraud cases if tax and interest are paid within 30 days (s.73) or 60 days (s.74A) of the adjudication order, and that the minimum penalty of ₹10,000 be removed in non-fraud cases.
Reducing the maximum general penalty under section 125 from ₹25,000 to ₹10,000, and capping the pre-deposit for appeals under sections 107(6) and 112(8) at ₹40 crore (₹20 crore CGST plus ₹20 crore SGST/UTGST) where the order involves only a penalty and no tax demand. It also recommended making section 115 a standalone provision on interest on refund of pre-deposit, with a clarifying circular, amending Rule 86A so a taxpayer can object to a block on the electronic credit ledger and get a personal hearing, and introducing a validation clause for notices held invalid by courts for covering multiple financial years.

3. Refunds

In Phase 1, the Council recommended that excess balance in the electronic cash ledger be refunded fully and automatically, that the time for issuing an acknowledgement or deficiency memo be cut from 15 to 10 days (with deemed acknowledgement after 10 days), and that 90% of refund claims for zero-rated supplies and inverted duty structure be sanctioned provisionally by the system on risk evaluation.
In Phase 2, the system will acknowledge refund applications and automatically sanction zero-rated supply refunds in full, after adjusting pending dues.
RFD-01 to be system-readable, with no scanned uploads for zero-rated and IDS claims.
Rule 89(4)(C): the cap of 1.5 times the value of like domestic goods on zero-rated goods turnover is removed.
Section 54(14): the ₹1,000 threshold applies to CGST, SGST/UTGST and IGST taken together.

4. Input Tax Credit

Extending inverted duty structure (IDS) refunds to input services for ITC availed on or after 1 November 2026, and extending IDS and zero-rated supply refunds to capital goods, spread over 60 months, for ITC availed on or after 1 April 2027. It also recommended relaxing section 17(5) for outdoor catering, health and life insurance, telecom towers, pipelines outside factory premises, free samples and goods destroyed or written off on expiry of shelf life where required by law, and allowing limited ITC in the same line of business for restaurants and outdoor catering, hotel accommodation up to ₹7,500 per unit per day, and gym and fitness services, with the conditions to be seen in the amendments.

5. Registration

A comprehensive circular and FAQs, drop-down boxes in REG-01, and a friendlier portal.
Rule 19: all amendments auto-accepted except PPoB changes. Under the Rule 14A automatic route, PPoB changes are also auto-accepted.
Cancellation on the taxpayer’s application: In phase 1, cancellation application (REG-16) will be auto-accepted once pending returns are filed and dues paid, where ITC passed on has not exceeded ₹2.5 lakh in any month since registration or the final return in GSTR-10 is filed within the specified time, and in Phase 2 all applications will be auto-accepted on the same conditions.
On suo-moto cancellation, certain grounds under Rule 21 are to be omitted, and Rules 21A and 22 are to be amended with a new Rule 23A for system-based cancellation and revocation.
New Rule 14B: small sellers on e-commerce platforms can declare an ECO’s warehouse in a state as their principal place of business, with automatic registration. The conditions are an ITC pass-on of no more than ₹2.5 lakh a month and no physical presence in that state.

6. Returns

The Council recommended streamlining return filing to reduce mismatches by enhancing FORM GSTR-1/1A/IFF, inserting new Rules 86C and 86D to provide electronic statements for credit reversal and reclaim and for RCM tax and ITC, and inserting sub-rules (1A) and (1B) in Rule 61 and sub-rule (6A) in Rule 60 for the Invoice Management System. It also recommended amending FORM GST DRC-03 so that the underlying invoice is declared, with these changes to apply from the April 2027 return after public consultation.

7. Exports and zero-rating

Omitting section 2(6)(v) of the IGST Act, so that services supplied to or through a foreign branch or office qualify as exports, and omitting section 13(3)(a), so that the place of supply for services on goods made available by the recipient is the recipient’s location. It also recommended that goods sold to an overseas buyer but delivered in an SEZ/FTWZ be deemed supplied to an SEZ/FTWZ where payment is received in convertible foreign exchange (or INR where RBI permits), along with a circular on payment in foreign exchange or INR for exports.

8. Movement of goods (sections 68, 129, 130)

Amending sections 68, 129 and 130 so that a conveyance can be intercepted only on specific intelligence and with the authorisation of an officer not below Joint Commissioner, and only where the supplier or recipient is located or registered in the intercepting state, meaning no interception in transit states. Goods with no e-way bill, or with no document showing origin or destination, can still be inspected, detained or seized irrespective of jurisdiction, while confiscation under section 130 will not apply to goods and conveyances in transit.

9. Other compliance measures

Late fee waiver under section 39(1) for turnover up to ₹5 crore, if the return is filed by the end of the month in which it was due.
In-principle approval of an optional Annual Return, Quarterly Payment (ARQP) scheme for turnover up to ₹5 crore and B2C-only suppliers.
E-invoicing extended to RCM supplies from unregistered persons and to import of services, for turnover of ₹5 crore and above.
Alignment of sections 16, 37 and 39, and clarification of ECO liability under section 9(5).
Transfer of title in IPR, temporary or permanent, treated uniformly as a supply of services.
GSTAT provisions aligned with the Tribunals Reforms Act, 2026.
Issuing circulars to clarify issues relating to the Input Service Distributor (ISD) mechanism, ITC for banks and NBFCs opting for section 17(4), payment of pre-deposits, and ITC on demonstration vehicles.
Rule 96(10) omitted with effect from 23.10.2017, per the Supreme Court decision.

Rate changes and clarifications

Goods: The Council clarified that sublimation paper falls under heading 4809, that the toys entries cover all toys under heading 9503, and that seaweed-extract bio-stimulants registered under the Fertiliser Control Order are classified under heading 3101 as fertilisers.
It also clarified that second-hand vehicle dealers under the margin scheme can claim ITC on inputs and input services but not on the vehicles themselves. Waste and scrap of plastics, e-waste, tyres and used cooking oil supplied by an unregistered person to a registered person are brought under RCM, with 2% TDS where a registered person supplies them to another registered person. Nil GST is prescribed on psyllium seeds, the rate on re-treaded tractor tyres is aligned with new tractor tyres, and compensation cess not levied by Canteen Stores Departments (CSDs) and unit-run canteens for specified past periods is exempted.
Services: The Council recommended an optional 5% GST with restricted ITC on passenger transport and motor vehicle rental with operator where an electric vehicle is used, and 5% without ITC on delivery services supplied through ECOs (other than courier and postal), while withdrawing the GTA exemption for goods ordered through ECOs.
It recommended exemptions for helicopter seat-sharing services in the North-East, Sikkim and Bagdogra, warehousing of seeds meant for sowing, coffee curing, Seamen’s Provident Fund Organisation services, the upfront amount paid to NHAI under the TOT model, and import of services by foreign shipping lines’ Indian establishments (with past regularisation). It also provided for self-certification for the R&D exemption under Entry 44A, a special procedure for O&M services in TOT highway projects, clarification on motor vehicle leasing recoveries, and treatment of Funds Transfer Pricing amounts in banks as “interest”.

Other announcements by the Finance Minister

The Finance Minister announced at the press conference that an officers’ committee will examine ITC protection for genuine buyers where the supplier defaults, though no final decision was made, and that a unified framework is planned for taxpayers operating under multiple CGST jurisdictions (about 69.5 lakh taxpayers fall under CGST jurisdictions). She also said a faceless CGST administration framework will be put up for public consultation before next year’s Budget, with implementation planned during FY28.

Analysis and Impact of such Recommendations

A clearer line between dispute and fraud- Omitting section 69, raising the threshold to ₹5 crore and narrowing section 132(1) all point the same way. They aim to take routine disputes, such as classification and delayed payment, out of the criminal framework, while the PIB release says deterrence against fraud and evasion is retained. This continues the direction of the 48th meeting, which raised the threshold from ₹1 crore to ₹2 crore and removed criminal consequences for certain offences. Officers can still investigate, recover tax and impose penalties. Because State GST Acts mirror the CGST Act, States would ordinarily need parallel amendments, which is my observation and not in the release.
Lower litigation cost- The ₹10,000 notice threshold, the 5% reduced penalty, the “charge” mechanism and the ₹40 crore pre-deposit cap together reduce the cost of disputing or settling. The validation clause for multi-year notices cuts the other way, because it rescues notices that courts had held invalid. It is likely to be closely watched.
Working capital- Extending IDS refunds to input services and capital goods, with the dates phased (1 Nov 2026 and 1 April 2027) and capital goods refunded over 60 months, targets credit that was stuck. The 90% provisional automated refund targets processing delay.
ITC integrity and mismatches- The new statements and the Invoice Management System changes aim to cut mismatches and system-generated notices, but they apply only from the April 2027 return, after consultation. The unresolved protection for genuine buyers remains a major open issue for industry.
Exports and cross-border transactions- The foreign-branch, place-of-supply and SEZ delivery changes remove common roadblocks to export treatment. Treating IPR title transfers uniformly as services adds certainty for cross-border deals.
Goods movement and small business- No interception in transit states, Joint Commissioner authorisation, simplified registration for small e-commerce sellers, the late fee waiver and the ARQP concept note ease operations. The e-way bill exception for goods carried without documents means enforcement remains.
Predictability- A single annual rate window from 1 April gives businesses a fixed planning date.
Implementation risk- None of this is law yet. Each item needs an Act, Rules or notification change, and several details are still open: the grounds omitted under Rule 21, the conditions for section 17(5) relief, and the punishment scales under section 132. Practitioners will read the final amendments closely.

AMLEGALS REMARKS

The 57th meeting of the GST Council provides a lot of relief on paper, but there are some grey areas remaining unresolved. Elimination of arrest powers and an increase in the prosecution threshold from ₹1 to ₹5 crore reduces the pressure, but even above this limit, prosecution stands alive, and the ultimate decision would be provided by Section 132.

The biggest dispute over litigation, ITC denial to the bona fide buyer because of the supplier’s default, was deferred to the officers’ panel for decision instead of being resolved. The validation provision in multi-year notices that provides relief to the notices invalidated by the courts seems to be inconsistent with the goal of a trust-based system.

A large part of the relief would come after a long period, on 1 November 2026 and 1 April 2027, at the time of the April 2027 return, and faceless administration for FY28. Before all these amendments to the legislation, notifications, and changes in the portal take place, the promise remains a promise. The path is already defined, now delivery matters.

For any queries or feedback, feel free to connect with Dhwani.tandon@amlegals.com