GST Council scraps tax officers' arrest powers, eases refund rules

The GST Council has made significant changes to the Goods and Services Tax system in India, with the second phase of GST2.0 set to be rolled out from April. The Council, led by Finance Minister Nirmala Sitharaman, decided on a major overhaul of procedures that will simplify business operations, make refunds easier to claim, and allow for smoother truck movement.

Among the most noteworthy changes are the removal of arrest powers for tax officers under the GST Act, raising the monetary threshold for prosecution to Rs 5 crore from Rs 1 crore, and rationalising penalties. In non-fraud cases, a reduced penalty of 5% will be imposed if interest is paid within 30 days or 60 days in the event of adjudication. The maximum general penalty has been slashed from Rs 25,000 to Rs 10,000.

To ease the burden of compliance, the Council has introduced faster refunds, with the aim of processing 90% of claims within three days. Acknowledgement of returns will be reduced from 15 days to 10 days, with deemed acknowledgement introduced for certain cases.

Simplifications have been introduced in the area of input tax credit, allowing businesses to claim refunds for capital goods over a 60-month period. Restrictions on the use of input tax credit have been removed for certain services like health and life insurance, outdoor catering, free samples, telecom towers, and pipelines laid in factories.

The GST Council has also made changes to the registration process, aiming for most businesses to register within three days. This includes the ability to change registrations automatically and alter the principal place of business. Returns have been simplified to automate details and work towards an invoice management system.

The changes reflect a shift towards a trust-based regime for taxpayers, with the focus on faster decisions, lower compliance costs, automated refunds, and a more citizen-friendly administration.