57th GST Council Meeting: Key Proposals on Decriminalization and Input Tax Credit in 2026

57th GST Council Meeting: Key Proposals on Decriminalization and Input Tax Credit

The 57th Goods and Services Tax (GST) Council meeting is set to convene on October 8, 2026, in New Delhi. This significant gathering of finance ministers from the central and state governments is expected to address several critical proposals aimed at streamlining GST administration and easing compliance burdens for businesses. Among the most anticipated agenda items are measures related to the decriminalization of certain GST offenses and enhancements to the input tax credit (ITC) system. These proposed changes could mark a notable shift in how GST disputes are handled and how businesses can claim credit for taxes paid on their inputs.

Decriminalization of GST Offenses

A primary focus of the upcoming GST Council meeting is the decriminalization of offenses under the GST law. Currently, certain violations can lead to arrest and prosecution, which can be a severe consequence for businesses. The proposals under consideration aim to reduce the instances where arrest provisions are invoked. This includes removing arrest provisions entirely for some offenses and significantly raising the threshold for prosecution.

Raising the Prosecution Threshold

Currently, prosecution under GST can be initiated if the tax evasion or fraud amounts to ₹1 crore. The Council is expected to consider raising this threshold to ₹5 crore. This adjustment would mean that fewer cases would escalate to criminal proceedings, allowing authorities to focus on tax recovery, interest, and penalties rather than pursuing arrests for smaller amounts. This move is intended to reduce the compliance burden and the fear of severe penalties for businesses, particularly small and medium-sized enterprises.

Shifting Focus to Tax Recovery

The proposed changes suggest a broader shift in enforcement strategy. Instead of relying heavily on arrest powers, the focus would be on recovering the actual tax dues, along with applicable interest and penalties. This approach aims to resolve disputes more efficiently and with less disruption to business operations. Reports indicate that several offenses might be fully or partially decriminalized, with penalties being eased for a number of violations.

Enhancing Input Tax Credit (ITC) Eligibility

Another crucial area on the agenda is the expansion of eligibility for input tax credit. The ITC mechanism is a cornerstone of the GST system, allowing businesses to claim credit for taxes paid on goods and services used in their business operations. However, certain restrictions and complexities have often led to disputes and difficulties for businesses in claiming their rightful credit.

Protecting Buyers from Supplier Defaults

A key proposal aims to protect buyers’ input tax credit even when a supplier further up the supply chain defaults on their tax obligations. Under the current system, if a supplier fails to pay GST, the buyer’s ITC can be blocked. The new proposal suggests that if a buyer possesses a valid invoice and proof of payment for the goods or services, they should be able to retain the ITC. In such cases, tax authorities would pursue recovery from the defaulting supplier directly. This measure would provide much-needed security to businesses that have diligently paid for their purchases and taxes.

Expanding Credit Categories

The Council is also expected to consider expanding the categories of goods and services eligible for ITC. This includes:

• Employee Benefits: Health and life insurance provided to employees may become eligible for ITC.
• Vehicles and Related Costs: ITC on vehicles with a seating capacity of up to 13 people, along with related insurance, servicing, and leasing costs, could be allowed.
• Infrastructure: Certain infrastructure components like telecom towers and pipelines laid outside factory premises might also be considered for ITC.
• Goods: Free samples and goods that are destroyed due to expiry, where required by law, could also be made eligible for credit.

These proposed expansions aim to address specific restrictions that have impacted various sectors and business practices.

Other Agenda Items

Beyond decriminalization and ITC, the GST Council is likely to discuss other important matters. These include simplifying GST registration processes for businesses that pass on significant tax credit, typically above ₹2.5 lakh per month. Proposals for faster refund processing and the implementation of system-driven enforcement measures are also on the table. These process-related improvements are designed to enhance efficiency and transparency within the GST framework.

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