GST Council may ease tax rules

The GST Council is likely to consider sweeping process reforms on Wednesday to make tax compliance easier for businesses, including raising the monetary threshold for criminal prosecution, reducing maximum imprisonment for some offences, giving courts greater discretion on imprisonment and fines, allowing small e-commerce sellers to use platform warehouses for GST registration and protecting genuine buyers’ input tax credit.

The proposals, which have been deliberated by the Law Committee of the GST Council, will be placed before the council at its October 7 meeting. While there is broad agreement on revising the prosecution and punishment provisions, the committee could not reach a consensus on whether the power to arrest under the GST law should be retained. The proposals also seek to narrow the scope of prosecution provisions so they do not apply to routine disputes over classification, valuation or Input Tax Credit, where businesses and tax authorities may hold differing interpretations of the same transaction, the source said.

The Law Committee, comprising officials from the Union Government, States and Union Territories with legislatures, examines legal provisions under GST and recommends statutory amendments and clarifications to the council. One of the key recommendations is to raise the monetary threshold for prosecution. The threshold, which was last revised in 2017, is proposed to be increased to Rs 10 crore from the existing Rs 5 crore. The committee has also proposed lowering the maximum imprisonment for certain offences. For tax evasion in the Rs 5 crore-Rs 10 crore range, the maximum sentence is proposed to be reduced to two years from three years at present.

Another proposed change is to give courts greater discretion in determining punishment. Under the current framework, offences can attract imprisonment along with a fine, but there is limited scope for courts to choose between imprisonment, a fine, or both depending on the gravity of the offence.

The proposed enforcement changes are part of the Government’s Next-Generation GST reform agenda, following the major rate rationalisation implemented in September 2025.

The GST Council is also expected to consider a proposal to allow employers to claim input tax credit on premiums paid for insurance coverage provided to employees. Under the law, GST is exempt on individuals buying life or health policies for themselves or their family. However, when a business buys life or health cover for its employees, tax is charged on that cover, and until now the business could not claim ITC on it. Currently, an 18 per cent GST is levied on all such group insurance policies.

One of the proposals seeks to allow small sellers using e-commerce platforms to treat the platform’s warehouse as their registered place of business in States where they do not have their own premises. A seller would need a genuine presence in one State, where physical verification and Aadhaar authentication would be completed, and registrations in other States could be obtained with the consent of the e-commerce platform without further tax-officer involvement.

The move could enable around 9.5 lakh small sellers to access the national market without establishing physical offices in every State where their goods are stored, while creating greater tax parity across competing e-commerce business models, sources said. The council may also consider a proposal to protect the input tax credit of genuine buyers who have valid invoices even if an upstream supplier defaults on tax payment.