Industry stakeholders have welcomed the latest GST reforms, with Abhishek Kumar, President of the Entrepreneurs Association of India (EAI), stating that the decision to reduce penalties addresses a long-standing industry demand and will help make the GST framework more business-friendly. As per Zee News, Kumar emphasized that "Lowering penalties has been a long-pending demand to ensure that GST is not seen as a punitive mechanism but as an inclusive framework that supports businesses. This is a significant step towards building confidence in the GST system and the overall business environment." Ravi Sood, President of the Badli Industrial Estate Association, also welcomed the measures, saying they would encourage industrial growth, especially among micro, small and medium enterprises. Sood noted that "The steps taken by the GST Council to support industries, particularly MSMEs, are commendable. We hope the government continues with such reforms, leading to greater liberalisation and enhancing confidence among both consumers and traders."
The Council has approved an optional scheme for the smallest taxpayers with turnover up to ₹5 crore who supply only to consumers, allowing them to file returns once a year while paying tax quarterly. Under the proposed framework, eligible businesses such as retail shops, salons and small eateries would pay GST every quarter but file a single return each year, reducing compliance requirements significantly. Out of 1.05 crore active GST taxpayers, around 16.85 lakh report supplies only to consumers, with 16.66 lakh, or 99%, having turnover below ₹5 crore and together accounting for less than 1% of the total GST liability reported. According to government estimates, these businesses account for less than 1% of the overall GST tax liability since their customers are individual consumers who do not claim input tax credit. At present, GST taxpayers are generally required to file monthly returns, but businesses with turnover of up to ₹5 crore have already been allowed to opt for quarterly return filing since 2021. The new proposal seeks to simplify compliance further by reducing return filing to once a year while retaining quarterly tax payments. Officials said the detailed operational framework and the legislative amendments required to implement the scheme will be placed before the Council at its next meeting, with the reforms slated to take effect from April 1, 2027.
The Council has approved significant improvements to GST refund processing, with current claims taking an average of about 25 days to process under the proposed framework. The new system would provide acknowledgement within 10 days, with 90% of eligible refunds released after a risk check, drawing information automatically from customs and banking systems. The time limit for acknowledging a refund claim will be reduced from 15 days to 10 days, with if neither an acknowledgement nor a deficiency memo is issued within 10 days, the claim will be deemed acknowledged. Refunds of excess balances in the cash ledger will become fully automatic, without any officer involvement, compared with the current seven-day timeline. The system will sanction 90% of the claim based on a risk assessment, with the order issued within three working days of acknowledgement, significantly improving processing speed. Sitharaman confirmed that the government is targeting April 1, 2027 for implementation of these recommendations. Refund eligibility is also proposed to be widened to cover tax paid on services and plant and machinery, expanding the scope of eligible refunds beyond current limitations. The refund of accumulated input tax credit on input services under inverted duty structure will be available on or after November 1, 2026, while refund of ITC on plant and machinery will be available on or after April 1, 2027, with the refund on plant and machinery spread over 60 months.
Beyond decriminalisation, the Council has approved a ₹10,000 threshold for issuing show-cause notices, representing another significant step in reducing compliance burden. As per The Times of India, this measure is part of the broader series of measures aimed at easing compliance and reducing procedural burdens. In the case of litigation, a common standard for notices, hearings and orders, and no notice at all below a threshold is being worked out to streamline the process. The reforms include changes to GST enforcement, including moving a number of offences outside the criminal provisions of the law, with cases involving delays, inadvertent errors or payment shortfalls dealt with through tax recovery, interest and proportionate penalties. The Council has also recommended removing the power of arrest under GST, with no GST demand notice will be issued where the tax amount is below ₹10,000. Taxpayers who file returns late, make mistakes or delay payments will face recovery, interest and a proportionate penalty, with no further action beyond these measures. In non-fraud cases, a reduced penalty of 5% will be imposed if the interest is paid within 30 days or 60 days in case of adjudication, with the maximum general penalty slashed from ₹25,000 to ₹10,000 and the upper-limit for pre-deposit in case of filing of appeals capped at ₹40 crore.
The Council has implemented significant measures to streamline goods movement by limiting inspections, detention and seizure to officers of the supplier or destination state. As per Business Standard, "No in-between stopping and checking," Sitharaman said, adding that goods could be intercepted only on the basis of specific intelligence and with authorisation from an officer of at least Joint Commissioner level. "So, any random GST officer cannot stop a vehicle," she emphasized, stating that the move would prevent arbitrary checks by GST enforcement wings and "significantly improve the ease of movement of goods." The government is also introducing faceless tax administration under the Central GST regime, with the proposed process reforms to be implemented in a staggered manner, with the changes forming part of the implementation agenda from April 1, 2027. Under the new approach, vehicles will be stopped only on specific intelligence, with prior authorisation from an officer not below the rank of joint commissioner, as per Business Standard. Consignments moving across multiple states will be subject to checks primarily at the origin and destination points, rather than being repeatedly checked during transit in every state. The government is also moving towards a faceless CGST administration, with a framework expected to be developed and put out for public consultation before the next Budget, with implementation targeted for 2027-28. Under this, centralised handling of audit, scrutiny, show-cause notices and adjudication is proposed for businesses with multiple CGST registrations.
The Council has addressed a long-standing concern about ITC protection for genuine buyers who hold valid invoices, have received goods and paid suppliers in full. A committee of officers will examine how to protect such buyers, with the committee expected to complete its study within three months, after which the matter will be placed before the next GST Council meeting. Sitharaman emphasized that "Why should an honest payer be put to difficulty and made to wait till such a time everyone in the supply chain comes out clean?" The issue relates to cases where genuine buyers face denial or reversal of ITC because of defaults elsewhere in the supply chain. The Council has also widened ITC availability for certain business expenses, with credit available on health and life insurance taken for employees, telecommunications towers and pipelines laid outside factories. ITC will also be available on free samples and stock written off on expiry where the law requires goods to be destroyed, with credit allowed to flow through certain business-to-business services. The Council has also sought to ensure that the same delivery service attracts the same tax irrespective of the commercial model used by the e-commerce platform. Export rules have been eased significantly, with Indian companies providing services to foreign clients through overseas branches now able to claim export benefits. Work carried out in India on goods belonging to foreign clients will qualify as export of services even when the goods do not leave India, benefiting businesses such as analytics firms, design studios and engineering consultancies. Small sellers will also be able to expand through e-commerce platforms without establishing separate physical places of business in every state, with sellers able to declare an e-commerce operator's warehouse in another state as their principal place of business.
