GST Council Reforms: Is the Promise of a 'Good and Simple Tax' Within Reach?

Unfortunately, the large populist giveaways last year have dented the GST collections, writes Subash Chandra Garg.

The process reforms under GST 2.0 were clearly the emphasis and the headline. The

(Photo: Vibhushita Singh/The Quint)

After the 57th Goods and Services Tax (GST) Council met on 8 October 2026, meant to plan and implement collaborative decisions on the administration, policies, and laws governing GST in India, the government press release classified its decision under three broad heads:

• Process reforms

• Other major reforms under GST

• Changes/clarifications in relation to GST rates on goods and services

The process reforms under GST 2.0 were clearly the emphasis and the headline. The GST, under execution since July 2017, was celebrated as a 'Good and Simple Tax'—it was the culmination of the long journey of India’s indirect tax reforms started in mid-1980s. Many of the changes made by the GST Council as process reforms were introduced in 2017 by the same government.

Will the major process and other reforms undertaken by the recent GST Council Meeting make GST the 'Good and Simple Tax'? Are we close to the end of indirect tax structure and systems reforms? Will it make a difference to the falling GST revenues?

Impact of Process Reforms Initiated  

In the press release post the 8 October meeting, there are three types of ‘reforms’ recommended by the GST Council.

1. The GST laws and system in 2017 were designed to instil a sense of deep fear in the minds of businesses (manufactures, traders and service providers) by building draconian arrest, seizure, and criminal punishment provisions. The set of process reforms undertaken now seek to mellow down these draconian powers.

2. The GST system had also led to massive input credits getting piled up. There are some provisions to relax the rigour of refund provisions somewhat.

3. There are a whole lot of clerical types of rules/circulars amendments that have been sought to be peddled as big process reforms.

In the name of rationalisation of provisions relating to arrest and prosecution, the GST Council recommended complete withdrawal of arrest powers by omitting Section 69 of CGST Act, 2017 (and similar provisions under the State GST Acts).

Once the necessary laws are amended, the GST officers would not have the power to arrest person(s) they believe to have committed various offences under the GST Acts [supplying goods or services without an invoice to deliberately evade GST; issuing fake GST invoices to claim input tax credit (ITC) or tax refunds; failing to deposit collected GST; falsifying records etc as listed under Section 132 of the CGST Act].

The Value Added Tax (VAT) and sales tax laws prevalent in the country, before the GST replaced them, did not have any arrest provisions. This ‘process reform’ will take the GST to the ‘pre-reform’ pre-2017 situation.

Section 132 of the CGST Act, which criminalises many GST-related crimes, stays (and rightly so). The arrest provisions only will go. Incidentally, many of these offences also amount to Indian Penal Code (IPC) offences like forgery and cheating. The Central government would have power under the Prevention of Money Laundering Act (PMLA) to arrest such persons, and state GST officials would (rightly) lose all arrest powers. 

To further strengthen a progressive and trust-based tax regime, the GST Council recommended raising the monetary threshold for prosecution from Rs 1 crore (prescribed for some offences under Section 132) to Rs 5 crore.

It also recommended:

• Omission of clause (i) of Section 132(1) of the CGST Act (receives or is in any way connected with the supply of or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of the CGST Act or rules made thereunder),

• Deletion of the words ‘evades tax’ in clause (e) of Section 132(1) (retains fraudulently obtaining refund and where such offence is not covered under clauses a to d),

• Deletion of words ‘or in any other manner deals with’ in clause (h) of Section 132(1) of the CGST Act (a small fragment of offence relating to possession of and dealing with goods liable to confiscation).

Clause (c) of Section 132(1) of the CGST Act, 2017 will also be amended to cover only offence of fraudulent availment of ITC without receipt of goods or services or without invoice or bill.

The vast regime of offences under Section 132 of the CGST Act (similar in state GST laws) remain very much in the law for which the government would be able to undertake prosecution under the GST laws. The impression that many offences under the GST Acts for which the governments can prosecute is incorrect—and the threshold of Rs 1 crore, raised to Rs 5 crore, is not applicable to a whole host of GST offences under the CGST Act and the state laws.

Dispute Resolution and Refunds

The press release has devoted considerable space to highlight the reforms related to dispute resolution. It says that comprehensive guidelines will be issued to the tax officers to streamline process of issuance of demand notices, adjudication orders, and appeal orders. The GST Council recommended raising the minimum threshold to Rs 10,000 (CGST + SGST + IGST + Cess) for issuance of show cause notices (existing notices will also not be processed).

The GST Council also recommended reducing the maximum general penalty (under Section 125 of the CGST Act) from Rs 25,000 to Rs 10,000 in non-fraud cases. Existing limit of Rs 20 crore has been raised to Rs 40 crore on the pre-deposit payable for filing an appeal (in specified cases). These will certainly bring some respite in very small cases.

The refund of accumulated ITC on account of capital goods and input services has been a major pain point for the GST-registered businesses. The GST Council recommended amendments in GST laws and rules to ease refund of accumulated ITC on account of capital goods in case of refund pertaining to zero-rate supplies, and of accumulated ITC on account of input services and capital goods in case of refund pertaining to inverted duty structure.

Refund of accumulated ITC on input services for refunds pertaining to inverted duty structure will now be available in respect of ITC availed on input services on or after 1 November 2026. The refund of accumulated ITC on capital goods will be spread over 60 months and shall be fully available in respect of ITC availed on capital goods on or after 1 April 2027.

Restrictions on availment of ITC like on supplies of 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 etc. have also been recommended to be removed. These refunds-related recommendations will certainly help the businesses, though the refund of accumulated ITCs relating to capital goods will take as much as five years. 

The other process ‘reforms’ recommended by the GST Council are of routine/clerical nature—and hopefully make some difference to the lives of GST-registered businesses.  

Is the End of the Road Nearer?

The GST has been a work in progress for the last 10 years. The process/other reforms undertaken by the GST Council on 8 October do not address many big-ticket GST reforms still pending. 

The GST rate structure still is too heavy—and there are many specific rates in place. The ambition of having one single GST rate is unrealistic in the Indian scenario. But it would certainly make tremendous sense if the governments were to freeze the GST rates into four (1 percent, 5 percent, 18 percent, and 40 percent), eliminating all other slabs, specific rates and exemptions. All assets (gold, silver, house and buildings) need to be brought under the 1 percent slab (without any ITCs) to bring all construction of and trade in assets over the surface.

A large number of valuable goods (petroleum products, electricity etc)—which are still outside the GST system—need to be brought in. There is a way to handle excessive taxation of petroleum products (effective central and state rates are over 100 percent against the maximum slab of 40 percent in GST) by shifting the excess to excise duties for intermediate period until the effective tax on petroleum products is brought down to 40 percent. 

The Indian GST system provides for exempting millions of goods and services providers from the coverage in GST (Rs 40 lakh minimum turnover exemption threshold for goods, Rs 20 lakhs for services). This distorts the entire production value chain and keeps millions of suppliers and traders outside the formal banking and credit system. By designing appropriate refund of net GST payable by such businesses and creating an easier online system (incorporated as part of the electronic payment system like UPI), these millions of small traders and other businesses can become part of the 'Good and Simple Tax'. The system of turnover-based composition schemes also needs to go away.

There are many other reforms—generation of online invoices, making the form GSTR-2 (monthly return for buyers to report purchase) kept in abeyance since GST came in force, inverted duty structure, etc—which are still pending or partly done. 

There is a long road still ahead before the journey of the GST reforms can be said to have come to conclusion.

No Impact on GST Collections   

The process reforms are justifiable for their own sake. Unfortunately, the large populist giveaways last year have dented the GST collections in the country. The effective GST revenues (tax collected on the value of supplies) has come down to only about 10.8 percent (the government had aimed at 15 percent in 2017). 

In the first half of financial year 2026-27, total GST receipts (CGST, SGST, IGST, and Compensation Cess) aggregated Rs 12.46 lakh crore. In the same period last year, total GST receipts were Rs 11.90 lakh crore. In the first six months of current year, the total GST receipts thus grew by only 4.72 percent. The scars of populist Diwali double bonanza of the last year are still persisting. These are likely to get aggravated as the effect of bump up in sales in the first six months (GST rate cuts had effectively come into existence from October 2025) come to an end now. 

India has been witnessing steady decline in GST receipts growth for the last five years. In the first half year, from the artificially high growth of 48.65 percent in 2021-22 (GST collections had declined by 25 percent in 2020-21). Total GST receipts grew by 32.20 percent in 2022-23, 11.1 percent in 2023-24, 9.53 percent in 2024-25, and 9.48 percent in 2025-26. 

Growth of 4.72 percent in the first half of 2026-27 is certainly a big underperformance in this trend of falling GST collections. 

(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)