For most small business owners, the hard part of GST has rarely been the rate on an invoice. It has been the process: a registration stuck on a query, a refund that takes months, a notice over a few thousand rupees, a truck stopped in a State it was only passing through. On 8 October 2026, the GST Council turned its attention to exactly that.
Key takeaways
- The 57th GST Council meeting focused on process, not rates: registration, returns, refunds, notices and enforcement.
- Arrest powers under GST would be withdrawn completely, and the prosecution threshold raised from ₹1 crore to ₹5 crore.
- No show cause notice where the tax involved is below ₹10,000, and the general penalty cap falls from ₹25,000 to ₹10,000.
- 90% of eligible export and inverted duty refunds would be sanctioned provisionally by the system, without an officer.
- Several blocked credits, including health and life insurance, would become eligible for input tax credit.
- These are recommendations. They take effect only once notifications, circulars and law amendments are issued.
What happened at the 57th GST Council meeting
The 57th meeting of the GST Council was held in New Delhi on 8 October 2026, chaired by Union Finance Minister Nirmala Sitharaman and attended by Chief Ministers, Deputy Chief Ministers and Finance Ministers of the States and Union Territories.
Last year's 56th meeting was about rates. It moved GST to two main slabs of 5% and 18%, effective from 22 September 2025. This year the Council turned to how GST is run day to day: registration, returns, refunds, adjudication and enforcement, along with a set of rate and classification clarifications.
For MSMEs, that shift matters more than another rate cut. Compliance cost, blocked working capital and the fear of coercive action are what hold small firms back, and that is where most of this package lands.
Recommendations, not yet law
Everything below is a recommendation of the GST Council. It becomes binding only when the government issues the relevant notifications and circulars, and the CGST and IGST Acts are amended where needed. A few items already carry dates, noted below. For the rest, wait for the notifications before changing how you file or pay.
The key changes at a glance
| Area | What the Council recommended | Who benefits most |
|---|---|---|
| Enforcement | Arrest powers withdrawn; prosecution threshold raised to ₹5 crore | All taxpayers |
| Notices and penalties | No notices below ₹10,000 of tax; general penalty capped at ₹10,000; 5% penalty for quick payment in non-fraud cases | Small businesses |
| Refunds | Automatic refund of excess cash ledger balance; 90% provisional refunds; 10-day acknowledgement | Exporters, inverted duty sectors |
| Input tax credit | Fewer blocked credits; refunds of credit on input services and capital goods | Manufacturers, service firms |
| Registration | Automatic amendments and cancellations; simple registration for small e-commerce sellers | New and growing businesses |
| Returns | New mechanism to fix GSTR-1, GSTR-3B and GSTR-2B mismatches from April 2027 | Every regular filer |
| E-way bills | Interception only on specific intelligence; no interception in transit States | Traders, transporters |
| Small taxpayers | Late fee waiver up to ₹5 crore turnover; optional annual return, quarterly payment scheme | Retail and B2C businesses |
1. No more GST arrests, and a higher bar for prosecution
The most striking recommendation is the complete withdrawal of arrest powers under GST, by omitting section 69 of the CGST Act. The Council described the aim as "a progressive and trust-based tax regime, while retaining effective deterrence against fraud and evasion."
The monetary threshold for prosecution would rise from ₹1 crore to ₹5 crore, and section 132 would be narrowed:
- Clause (c) would cover only fraudulent availment of input tax credit without receiving goods or services, or without an invoice or bill.
- Clause (i) would be omitted, the words "evades tax" removed from clause (e), and "or in any other manner deals with" removed from clause (h).
- Punishments for the various offences would be rationalised.
This does not make evasion safe. Fake invoicing and fraudulent credit claims remain offences, and tax, interest and penalties still apply. What changes is that a genuine business in a dispute over classification or credit would no longer face the threat of arrest.
2. Fewer notices and smaller penalties
A large share of GST disputes involve small amounts. The Council recommended changes to sections 73, 74 and 74A of the CGST Act to cut that down:
- No show cause notice where the tax involved is below ₹10,000 (CGST, SGST, IGST and cess together). Pending notices and appeals below ₹10,000 would be decided as if this threshold had always applied.
- Where the full tax, interest and penalty are paid voluntarily within the set time, the penalty would be treated as a "charge".
- In non-fraud cases, the penalty falls to 5% if tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the order.
- The minimum penalty of ₹10,000 in non-fraud cases would be removed.
- The maximum general penalty under section 125 would fall from ₹25,000 to ₹10,000.
For appeals where the order involves only a penalty and no tax demand, the pre-deposit would be capped at ₹40 crore (₹20 crore CGST and ₹20 crore SGST/UTGST). A circular would also set standards for notices and orders, covering their quality and timing, when fraud or suppression can be alleged, and the right to a personal hearing.
For a small business, the most expensive GST notice is often not the tax in it but the weeks spent answering it.
3. Faster refunds and freed-up working capital
Refund delays lock up cash that MSMEs need for stock, salaries and growth. Through amendments to section 54 of the CGST Act, the Council recommended system-based refund processing in two phases.
- 1Phase 1: automatic and provisional
Excess balance in the electronic cash ledger refunded automatically. Acknowledgement or deficiency memo within 10 days instead of 15, with deemed acknowledgement after that. 90% of eligible zero-rated and inverted duty claims sanctioned provisionally by the system, based on its risk assessment.
- 2Phase 2: fully automated
System-based acknowledgement after verification, and automatic sanction of the full refund for eligible zero-rated claims, after adjusting any pending dues.
Three smaller changes support this. The refund form RFD-01 would capture data in a system-readable format, with no scanned uploads for zero-rated and inverted duty claims. The cap that limited zero-rated goods turnover to 1.5 times the value of like goods supplied domestically would go. And the ₹1,000 minimum refund would apply to CGST, SGST/UTGST and IGST taken together.
If cash flow is a constant pressure in your business, our piece on financial planning for MSMEs covers how to plan around it.
4. More input tax credit, and less of it blocked
Section 17(5) of the CGST Act lists credits a business cannot claim. The Council recommended lifting the block on several items, including:
- Outdoor catering
- Health and life insurance
- Telecommunication towers
- Pipelines laid outside factory premises
- Free samples
- Goods destroyed or written off on expiry of shelf life, where the law requires it
Refunds of accumulated credit would also widen. In inverted duty cases, credit on input services availed on or after 1 November 2026 would become refundable. Credit on capital goods would become refundable, for both zero-rated and inverted duty refunds, for credit availed on or after 1 April 2027, spread over 60 months.
Two more changes help with day-to-day credit. Under rule 86A, a business could object to credit being blocked in its electronic credit ledger and get a personal hearing before the officer decides. And restaurants and outdoor caterers, hotels charging up to ₹7,500 per unit per day, and gyms could take limited credit on services in the same line of business, as passenger transport and tour operators already can.
5. Simpler registration, amendments and cancellation
Automatic registration under rule 14A, for applicants passing on no more than ₹2.5 lakh of credit a month, already exists. For everyone else, the Council recommended a circular with FAQs listing exactly which documents registration needs, and drop-down options in FORM GST REG-01 so applicants and officers agree on what is required.
If you are registering for the first time, our guide to GST registration explains the basics. The other changes:
- Changes to registration details would be accepted automatically, except the principal place of business. Rule 14A registrants could change even that automatically.
- Cancellation applications would be accepted automatically once all returns are filed and dues paid: first for businesses that have not passed on more than ₹2.5 lakh of credit in any month (or have filed GSTR-10), and later for everyone.
- A new rule 14B would let small sellers on e-commerce platforms register in other States by declaring the platform's warehouse there as their principal place of business, with automatic approval, subject to conditions.
That last change matters for MSMEs selling online. Expanding into a new State through a marketplace would no longer mean setting up a physical address there. It continues the direction of last year's CBIC reforms towards faster, less discretionary registration.
6. Fewer return mismatches from April 2027
Mismatches between GSTR-1, GSTR-3B and GSTR-2B generate a steady stream of system notices. The Council recommended a set of fixes:
- Better reconciliation of GSTR-1, GSTR-1A and IFF with GSTR-3B, and a way to correct liability in GSTR-3B to match.
- A way to correct input tax credit in GSTR-3B so it matches GSTR-2B.
- Two new statements on the portal: one for tax paid and credit claimed under reverse charge (rule 86D), and an Electronic Credit Reversal and Reclaim Statement (rule 86C).
- More flexibility in the Invoice Management System to accept, reject or keep documents pending.
- FORM DRC-03 to show the invoice behind each payment.
These would apply from the April 2027 return period, after a time-bound public consultation. The Council also recommended aligning the deadlines for GSTR-1 and GSTR-3B with the time limit for claiming credit under section 16(4).
7. Smoother movement of goods across States
Under amended sections 68, 129 and 130, a vehicle carrying goods could be intercepted only on specific intelligence, with authorisation from an officer of at least Joint Commissioner rank. Inspection, detention or seizure would be possible only where the supplier or recipient is located or registered in the State making the interception, so there would be no interception in transit States.
The exception is where no e-way bill has been generated, or the vehicle carries no document showing where the goods are coming from or going to. Confiscation under section 130 would not apply to goods or vehicles in transit.
8. Relief aimed at small taxpayers
Two measures target smaller businesses directly:
- Late fee waiver: no late fee on a delayed return under section 39(1) for businesses with turnover up to ₹5 crore in the previous year, if the return is filed by the end of the month in which it was due.
- ARQP scheme: the Council approved in principle a concept note for an optional Annual Return Quarterly Payment scheme for businesses with turnover up to ₹5 crore that sell only to unregistered buyers (B2C).
For a neighbourhood store, a local restaurant or a small retailer, ARQP could mean one annual return with quarterly payments. It is only a concept for now, so keep filing as usual until the rules are notified.
9. Exports, e-invoicing and other changes
- Services supplied by an Indian business to its own foreign branch or office could qualify as exports, easing refunds for service exporters.
- A circular would clarify receiving export payments in foreign currency, or in rupees where the RBI permits.
- Goods sold to an overseas buyer but delivered in an SEZ or FTWZ would be treated as a supply to the SEZ or FTWZ, giving certainty on zero rating.
- Transfer of intellectual property rights, temporary or permanent, would be treated uniformly as a supply of services.
- E-invoicing would extend to reverse charge purchases from unregistered persons and to imports of services, for businesses with turnover of ₹5 crore or more.
- Plastic, electronic and tyre waste and scrap, and used cooking oil, would come under reverse charge when sold by an unregistered to a registered person, with 2% TDS on such sales between registered persons.
Rate and classification clarifications
The Council did not change rates broadly, but it settled several long-running questions:
| Item | Recommendation |
|---|---|
| Psyllium seeds (isabgol) | Nil GST, whether fresh, chilled, frozen or dried |
| Toys under heading 9503 | The rate entry covers all toys, such as dolls and puzzles, not just tricycles, scooters and pedal cars |
| Seaweed-extract bio-stimulants | Classified as fertilisers under heading 3101 if registered under the Fertiliser Control Order; past cases regularised |
| Sublimation paper | Classified under heading 4809; past cases regularised |
| Re-treaded tractor tyres | Same rate as new tractor tyres |
| Passenger transport and vehicle rental using EVs | Option of 5% GST with restricted credit, where charging cost is included |
| Delivery services through e-commerce platforms | 5% GST without credit for specified delivery services |
| Second-hand vehicle dealers (margin scheme) | Credit allowed on inputs and services such as repairs, rent and marketing; only credit on the vehicles themselves stays blocked |
| Seed storage, coffee curing, helicopter seat-sharing in the North East, Sikkim and Bagdogra | Exempt |
What changes for MSMEs: before and after
| Today | If the recommendations are implemented | |
|---|---|---|
| Arrest | Possible under section 69 | Arrest powers withdrawn |
| Prosecution threshold | ₹1 crore | ₹5 crore |
| Small notices | Can be issued for any amount | None below ₹10,000 of tax |
| General penalty (section 125) | Up to ₹25,000 | Up to ₹10,000 |
| Refund acknowledgement | 15 days | 10 days, then deemed |
| Export and inverted duty refunds | Processed by an officer | 90% sanctioned provisionally by the system |
| Credit on health and life insurance | Blocked | Allowed |
| Late fee (turnover up to ₹5 crore) | Charged on any delay | Waived if filed by the end of the month |
What your business should do now
Recommendations
- Do not change how you file or pay yet. Wait for the notifications and circulars, and follow them for the dates.
- If you export or work in an inverted duty sector, track credit on input services availed from 1 November 2026, and plan capital purchases knowing credit from 1 April 2027 becomes refundable over 60 months.
- Review any pending notices and appeals involving less than ₹10,000 of tax. They may close under the new threshold.
- Clean up your GSTR-1, GSTR-3B and GSTR-2B reconciliation now, ahead of the April 2027 changes.
- If you sell only to consumers and your turnover is up to ₹5 crore, follow the ARQP scheme as it takes shape.
- If you sell through e-commerce platforms, list the States you could enter under the new rule 14B registration.
Frequently asked questions
When did the 57th GST Council meeting take place?
Are these changes in force now?
Can GST officers still arrest someone?
Will I still get a notice for a small tax difference?
What is the ARQP scheme?
Did the Council change GST rates?
The bottom line
The 57th GST Council meeting is the clearest sign yet that GST is moving from enforcement by suspicion to compliance by system. Most of these reforms will arrive over the next year through notifications and rule changes. Businesses that prepare now, by cleaning up reconciliations and mapping their credit and refund positions, will be the first to benefit.
If you would like help working out what these changes mean for your business, talk to our team or explore our Financial Solutions practice.
