57th GST Council Meeting: Key Changes and What They Mean for Your Business

The 57th GST Council meeting has recommended one of the broadest sets of changes since GST was introduced — covering input tax credit (ITC), refunds, registration, returns, penalties and prosecution. The emphasis is on easing compliance, releasing blocked working capital and reducing litigation.

Headline Changes at a Glance

• Prosecution threshold raised from ₹1 crore to ₹5 crore; power of arrest to be removed from GST law.
• Section 17(5) ITC blocks relaxed for outdoor catering, health and life insurance, telecom towers, pipelines outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life.
• Refund of tax on input services under the inverted duty structure (IDS) allowed for services availed on or after 1 November 2026.
• ITC on capital goods eligible for refund (zero-rated supplies and IDS) over 60 months, for capital goods availed on or after 1 April 2027.
• No late fee on delayed GSTR-3B for taxpayers with turnover up to ₹5 crore, if filed by the end of the month.
• No notice for tax demands below ₹10,000; general penalty cut from ₹50,000 to ₹20,000.

1. Input Tax Credit

The restrictions under Section 17(5) are to be removed for several categories, including outdoor catering, health and life insurance (for example, cover taken for employees), telecommunication towers, pipelines laid outside the factory premises, free samples, and goods destroyed or written off after their shelf life expires, as required by law.

Suppliers of restaurant or outdoor catering services, hotel accommodation (up to ₹7,500 per unit per day) and gym/fitness services will be allowed ITC on expenses in the same line of business.

2. Refunds

Refunds will be reformed in two phases. In Phase 1, excess balance in the electronic cash ledger is to be refunded automatically, the time to issue an acknowledgment or deficiency memo drops from 15 to 10 days, and for zero-rated supplies and IDS refunds, 90% of the claim is sanctioned provisionally by the system based on risk assessment. Phase 2 moves towards system-based acknowledgment and automated sanction for zero-rated supplies.

The restriction on the maximum turnover of zero-rated supplies of goods relative to like domestic supplies will be removed from the CGST Rules, and Section 115 (interest on refund of pre-deposit) will be made a standalone provision.

Why it matters: manufacturers facing an inverted duty structure and exporters can expect accumulated credits to be released faster, improving liquidity.

3. Exports and Place of Supply

• Supplies to or through a head office, branch, agency or representative office outside India will get export status, subject to conditions.
• Section 13(3)(a) of the IGST Act is to be omitted, so for services involving goods made physically available by the recipient, the place of supply will be the recipient's location.
• Goods supplied to an overseas buyer but delivered to an SEZ/FTWZ will be treated as supplied to the SEZ/FTWZ, subject to payment in convertible foreign exchange or INR where RBI permits.
• Transfer of title in intellectual property rights (temporary or permanent) will be treated as a supply of services.

4. Registration

• A comprehensive circular and FAQs on documents required for registration.
• Automatic acceptance of amendments to registration particulars on the portal (except principal place of business).
• Automatic cancellation of registration on the taxpayer's application, once all returns are filed and dues paid — first with conditions, later for all applications.
• Some grounds for suo motu cancellation by officers to be removed.
• Simplified automatic registration for small suppliers selling through e-commerce operators (ECOs) in States where they have no physical presence and pass on ITC not exceeding ₹2.5 lakh per month.

5. Returns

• Enhancements to GSTR-1, GSTR-1A and IFF for better reconciliation with GSTR-3B.
• New electronic statements for tax paid under reverse charge and ITC claimed, and for ITC reversal and reclaim.
• A mechanism to correct liability and ITC reported in GSTR-3B using GSTR-1, GSTR-1A, IFF and GSTR-2B details.
• IMS rules to let recipients accept, reject or keep inward-supply documents pending; DRC-03 to capture invoice details.
• No late fee on delayed GSTR-3B for taxpayers with annual turnover up to ₹5 crore, provided the return is filed by month-end.
• In future, an optional annual return with quarterly payment for taxpayers with turnover up to ₹5 crore who make only B2C supplies.
• Taxpayers with aggregate turnover of ₹5 crore and above must generate e-invoices for RCM supplies from unregistered persons and for import of services.

6. E-way Bill and Inspection

• Interception of a conveyance only on specific intelligence and with authorisation of an officer not below Joint Commissioner.
• Detention or seizure limited to States where the supplier or recipient is located or registered (not applicable where e-way bill or documents are unavailable).
• Confiscation provisions not to apply to goods or conveyances in transit.

7. Dispute Resolution and Penalties

• No notice where the tax involved is below ₹10,000, including pending notices and appeals once the law comes into force.
• Penalty treated as a "charge" where full tax, interest and penalty are voluntarily paid within the specified time.
• Reduced penalty of 5% in non-fraud cases if tax with interest is paid within 30 days (Section 73) or 60 days (Section 74A) of the adjudication order.
• Minimum penalty of ₹20,000 in non-fraud cases removed; maximum general penalty reduced from ₹50,000 to ₹20,000.
• Pre-deposit for appeals where the order involves only penalty (no tax demand) capped at ₹40 crore (₹20 crore each under CGST and SGST).
• Detailed guidelines for officers on show cause notices, adjudication and appeal orders.

8. Arrest and Prosecution

The power of arrest is to be withdrawn from GST law, the monetary threshold for prosecution rises from ₹1 crore to ₹5 crore, punishment for certain offences will be omitted and the quantum of punishment rationalised. The focus of criminal consequences moves to serious non-compliance and fraud.

9. Other Notable Changes

• Passenger transport and renting of motor vehicles with operator using electric vehicles: GST at 5% without ITC, where battery charging cost is included in the consideration.
• Delivery services through an ECO by an unregistered person: tax payable by the ECO at 5% without ITC.
• GTA services to unregistered persons: exemption will not apply where the services relate to goods supplied through an ECO.
• A mechanism to object to blocking of balance in the electronic credit ledger, with a personal hearing.
• Toll collection rights granted by the Government to the concessionaire of a TOT highway project exempted; special valuation procedure for O&M services.
• Validation provision for notices held invalid by courts only because they covered multiple financial years.

What Businesses Should Do Now

• Review blocked ITC: check whether past and upcoming expenses (catering, insurance, telecom towers, write-offs) may become eligible once the amendments are notified.
• Exporters and IDS manufacturers: map accumulated credits and plan refund claims, noting the 1 November 2026 and 1 April 2027 cut-off dates.
• Tighten GSTR-1 / 2B / 3B reconciliation: the new correction mechanism and IMS will reward clean, matched data.
• Pending notices: check whether small-value demands or penalty provisions could reduce your exposure.
• Large taxpayers (₹5 crore+): prepare systems for e-invoicing of RCM and import-of-services transactions.

The Way Forward

Circulars and rule notifications are expected in the near term, while the Act amendments are likely to be taken up in the next Budget Session of Parliament. A Committee of Officers is also examining denial of ITC where fraud occurs anywhere in the supply chain, and a centralised, faceless assessment framework is expected from FY 2027-28.

We will update our clients as each change is notified. If you would like to know how these changes affect your business, our team is happy to help.