More than nine years after the Goods and Services Tax (GST) regime was introduced in July 2017,
The government is considering a major change to the indirect tax framework — removing the power of tax authorities to arrest taxpayers under GST laws.
The proposal to decriminalise certain offences under the GST regime is expected to come up for discussion at the 57th GST Council meeting on October 7, with the move aimed at addressing concerns among businesses and investors over alleged overreach by tax authorities, according to people familiar with the matter.
The Centre and state governments have held several rounds of consultations over the past eight to nine months to build consensus on withdrawing the arrest provisions. The issue has gained urgency following a number of arrests of senior business executives under GST provisions, which industry representatives have criticised as excessive.
Under the proposed framework, cases involving deliberate fraud, deception or intentional tax evasion would continue to face prosecution. However, arrests in such cases would be handled under the Bharatiya Nyaya Sanhita (BNS), rather than through the GST law, according to sources.
“The consultations have been underway for the last eight to nine months. Feedback from businesses regarding arrests has been considered while taking the proposal forward. The GST Council will deliberate on the issue, after which the final decision will be taken. Legislative amendments would then be required to remove the arrest provisions from GST laws,” a source said.
Since the introduction of GST, authorities have uncovered several fraudulent schemes involving fake identities, mule accounts, bogus invoices and fraudulent claims of input tax credit. Other cases have involved the undervaluation of goods, suppression of taxable transactions and non-payment of GST collected from customers.
Between 2021-22 and 2024-25, central GST formations recorded 72,393 cases involving GST offences and made 887 arrests. Arrests carried out by state tax authorities would be in addition to these figures.
Under the Central GST Act, violations can attract penalties under Section 122, interest under Section 50 and recovery of tax. However, offences involving a deliberate attempt to evade tax can also trigger arrest and prosecution under the criminal provisions of the CGST Act.
Section 69 of the CGST Act empowers the Commissioner to authorise an arrest when there are “reasons to believe” that a person has committed specified offences, including issuing fake invoices or fraudulently claiming input tax credit. Such reasons are required to be supported by credible evidence and recorded in writing; mere suspicion is not sufficient.
If the GST Council reaches a consensus at its October 7 meeting, the Centre is expected to introduce the necessary legislative amendments during the Winter Session of Parliament, according to sources.
Industry representatives have argued that GST arrest provisions have, in some cases, become a source of pressure on businesses, particularly in sectors such as banking and insurance. Experts have also alleged that the threat of arrest could be used as leverage to push businesses into paying disputed penalties rather than pursuing lengthy legal proceedings.
An official described the proposed removal of arrest powers as a taxpayer-friendly step that could help address perceptions of fear and harassment within the GST system.
Concerns over arrest powers are not new. The issue was raised even before GST was formally introduced. During the fifth GST Council meeting in December 2016, Maharashtra’s Additional Chief Secretary reportedly questioned whether arrest and confiscation powers were compatible with the government’s ease-of-doing-business objective.
A West Bengal minister also pointed out that state VAT laws did not provide tax authorities with arrest powers and argued that criminal complaints should instead be handled by the police.
At the time, the GST Council Secretariat maintained that arrest powers under GST were narrowly defined and could be exercised only in serious cases involving tax evasion of more than Rs 2 crore. These included supplying goods or services without invoices, issuing invoices without actual supply, collecting tax but failing to remit it to the government, and fraudulent availment of input tax credit.
The Central Board of Indirect Taxes and Customs (CBIC) has previously defended the provisions, arguing that arrest powers were intended to deter serious tax evasion and ensure effective tax administration. It also highlighted safeguards requiring authorisation by the Commissioner and limiting arrests to specified offences involving amounts above the prescribed threshold.
The proposed GST changes come amid a broader move towards decriminalisation of tax-related offences. On the direct tax side, the Central Board of Direct Taxes (CBDT) in September removed arrest and detention provisions from tax recovery rules with retrospective effect from April 1, 2026.
Through a notification dated September 17, the CBDT introduced the Income-Tax (Fourth Amendment) Rules, 2026, removing references to “arrest and detention” in cases involving tax defaults, including provisions applicable following the death of a defaulter.
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