57th GST Council Meeting: Decriminalisation, ITC Relief and Easier Compliance in Focus

Summary: The 57th GST Council meeting scheduled for 7 October 2026 is expected to focus on the next phase of GST reforms, with process simplification, input tax credit and enforcement reforms taking centre stage. Reported proposals include curtailing departmental arrest powers and introducing greater judicial oversight, protecting genuine buyers from denial of ITC merely because their suppliers default in depositing GST, widening ITC eligibility for employee group insurance and certain other business expenses, simplifying registration and returns, and reducing avoidable litigation. However, these are proposals under consideration and should not be treated as changes in law unless approved by the Council and subsequently implemented through the necessary statutory amendments, rules, notifications or circulars.

57th GST Council Meeting Scheduled for 7 October 2026

The 57th GST Council meeting is scheduled to be held in New Delhi on 7 October 2026. The meeting assumes considerable significance as attention shifts from rate rationalisation towards the administration and enforcement of GST.

The Officers’ Meeting preceding the Council meeting is scheduled for 5 and 6 October 2026. Reports ahead of the meeting indicate that the Council could consider a broad package aimed at reducing litigation, rationalising enforcement powers, improving the input tax credit mechanism and simplifying compliance.

Importantly, the measures discussed below are proposals reportedly under consideration. They do not represent the existing legal position or final recommendations of the GST Council.

GST Decriminalisation and Arrest Powers Could See Major Review

One of the most significant proposals reportedly under consideration concerns the exercise of arrest and prosecution powers under GST.

At present, Section 69 of the Central Goods and Services Tax Act, 2017 empowers the Commissioner, subject to the statutory conditions, to authorise the arrest of a person where there are reasons to believe that specified offences under Section 132 have been committed.

The reported reform could significantly change the enforcement philosophy by introducing greater judicial oversight over arrests and restricting criminal proceedings primarily to serious cases involving deliberate fraud or tax evasion.

Routine disputes involving interpretation, classification, valuation or genuine input tax credit differences could consequently be dealt with principally through the civil tax machinery involving determination of tax, interest and penalty rather than criminal action, depending upon the final framework approved and enacted.

Such a change, if implemented with appropriate safeguards, could reduce the fear of criminal proceedings arising from essentially interpretational GST disputes while preserving strong enforcement powers against fake invoicing, fraudulent ITC and deliberate tax evasion.

Genuine Buyers May Get Protection Against Supplier GST Default

Another important proposal concerns one of the most litigated areas of GST — denial of input tax credit to a purchasing dealer because the supplier has failed to deposit tax with the Government.

Section 16(2)(c) of the CGST Act presently makes actual payment of tax to the Government, either in cash or through utilisation of admissible ITC, one of the statutory conditions associated with the recipient’s entitlement to credit.

The difficulty arises where a bona fide purchaser has received the goods or services, possesses a valid tax invoice, has paid the supplier the entire consideration including GST and has otherwise complied with the law, but subsequently discovers that the supplier failed to discharge the corresponding tax liability.

A proposal reportedly being examined would protect genuine recipients in such situations, subject to safeguards designed to exclude collusion, fake invoices and fraudulent transactions.

If adopted, the reform could permit recovery proceedings to be directed primarily against the defaulting supplier rather than automatically transferring the economic burden of the supplier’s default to an innocent purchaser.

This could materially reduce ITC litigation and vendor-compliance risk for businesses. The precise conditions, documentary requirements and legislative mechanism will, however, be critical.

Employee Group Insurance ITC May Be Unblocked

The Council is also expected to consider widening ITC availability in respect of certain employee-related expenditure.

Section 17(5) of the CGST Act currently blocks ITC on specified supplies, subject to statutory exceptions. These include certain food and beverages, outdoor catering, health services, life insurance and health insurance.

There is already an important exception where provision of specified goods or services by an employer to employees is obligatory under any law. CBIC has clarified through Circular No. 172/04/2022-GST that the relevant proviso applies to the entire Section 17(5)(b).

The reported proposal goes further and could provide relief for GST paid by employers on group life and health insurance provided to employees even in circumstances where the existing statutory exception may not be available.

For businesses, this would convert GST that currently becomes a cost in many cases into potentially creditable tax, thereby reducing the effective cost of employee welfare benefits.

Outdoor Catering and Other Blocked Credits Also Under Review

The review may not be restricted to employee insurance.

Reports indicate that the Council could examine the blocked-credit framework under Section 17(5) more broadly, including credits relating to outdoor catering and other expenditure having a genuine business nexus.

Section 17(5) has historically been one of the principal sources of GST disputes because credit can be blocked notwithstanding the expenditure being incurred in the course or furtherance of business.

Any relaxation must therefore be examined against the precise wording eventually recommended by the Council. A general review of Section 17(5) should not be understood as an across-the-board removal of blocked credits.

Registration and Return Filing Could Become Simpler

Compliance simplification is another important theme expected at the meeting.

The Government has progressively moved towards greater automation of registration, invoice matching and return filing. The forthcoming deliberations could examine further simplification of registration procedures, particularly by reducing inconsistent documentation requirements and improving risk-based processing.

Return filing may also see further rationalisation and greater automation. The longstanding objective has been to minimise manual intervention by integrating GSTR-1, GSTR-2B and GSTR-3B more effectively.

The possibility of providing taxpayers with a more effective mechanism for correcting return-related errors would be commercially important. Errors in GSTR-3B have historically created difficulties because corrections generally flow through subsequent returns rather than through unrestricted revision of the original return.

Any proposal permitting broader amendment or correction facilities would therefore need to be examined carefully once the Council publishes its recommendations and the corresponding legal or portal changes are notified.

MSMEs Could Be Major Beneficiaries

Small and medium businesses are likely to benefit disproportionately if registration and return procedures are simplified.

For MSMEs, GST compliance costs are not confined to the amount of tax payable. Vendor reconciliation, ITC matching, registration queries, return corrections and responses to departmental notices impose substantial administrative costs.

A system that relies more heavily on risk-based verification and automated matching while reducing repetitive documentation could lower these costs without materially weakening revenue safeguards.

Similarly, protecting genuine recipients against supplier defaults would be particularly important for smaller businesses that may not possess the bargaining power or compliance infrastructure necessary to continuously monitor every supplier.

Industry View: Jitendra Motwani, Partner – Tax Practice, Trilegal

Commenting on expectations from the forthcoming meeting, Jitendra Motwani, Partner – Tax Practice, Trilegal, said:

“Trade is keenly awaiting the 57th GST Council meeting on 7 October, the second leg of GST 2.0. The proposed decriminalisation, with judicial oversight of arrests and routine ITC and classification disputes kept outside criminal reach, would be a forward-looking step that treats honest taxpayers as partners rather than suspects. Unblocking credit on employee group insurance and outdoor catering would aid cash flow. Equally significant is the proposal to let genuine recipients retain credit even where suppliers’ default, signalling that honest taxpayers will not be penalised for others’ defaults. Simpler registration returns and GSTR-3B amendments should ease MSME compliance. Overall, the meeting appears set to reduce litigation, which trade will welcome, though real relief will hinge on implementation circulars and field-level follow-through.”

The observations underline an important distinction between policy announcements and practical implementation. Even where the Council recommends taxpayer-friendly reforms, their commercial benefit will depend upon the language of subsequent amendments, notifications and circulars and their consistent application by field formations.

Potential Impact of Key GST 2.0 Proposals

No Change in Law Until Recommendations Are Implemented

Businesses should not change their present GST positions merely on the basis of the proposals being reported ahead of the Council meeting.

A recommendation of the GST Council does not by itself amend the CGST Act, CGST Rules or applicable notifications. Depending upon the nature of the proposal, implementation may require an amendment to the CGST Act, corresponding State GST legislation, amendment of the CGST Rules, issuance of a notification or circular, and/or changes to the GST portal.

This distinction is particularly important for proposed changes concerning Sections 16, 17, 69 and 132 of the CGST Act.

Until the relevant legal instruments become effective, taxpayers should continue complying with the law as it presently stands.

Conclusion

The 57th GST Council meeting could mark an important transition in GST 2.0 — from rate rationalisation towards reform of the manner in which GST is administered and enforced.

Decriminalisation and greater judicial oversight of arrests could make enforcement more proportionate. Protecting genuine purchasers against supplier defaults could address one of the most persistent sources of ITC litigation. Relaxation of blocked-credit provisions for employee insurance, outdoor catering and other genuine business expenditure could improve cash flows, while simpler registration and return procedures could materially reduce the compliance burden on MSMEs.

However, the decisive question will not merely be what the GST Council recommends on 7 October 2026. The practical impact will depend upon the precise statutory amendments, rules, notifications, circulars, safeguards, effective dates and GST portal changes through which those recommendations are ultimately implemented.

Disclaimer: The proposals discussed above are based on developments and reports available ahead of the 57th GST Council meeting. They should not be treated as final decisions or changes in GST law. Taxpayers should act on the basis of the applicable statutory provisions and the notifications, circulars and other legal instruments issued after the Council’s recommendations.