GST Decriminalisation: India Embraces Trust-Based Governance

The Confederation of Indian Industry (CII) has lauded the Goods and Services Tax (GST) Council's recent decisions to decriminalise enforcement powers and rationalise penalties as a landmark institutional reform. These changes signify India's move towards a trust-based economic governance model, demonstrating effective Centre-state collaboration on sensitive issues. The reforms, targeted for implementation by April 1, 2027, include a fivefold increase in the monetary threshold for prosecution, raising it from ₹1 crore to ₹5 crore. Arrest powers are to be removed through legislative amendment, with criminal prosecution reserved only for severe cases of deliberate fraud and evasion.

Interim measures have already been introduced to facilitate trade. The Central Board of Indirect Taxes and Customs (CBIC) has instructed field formations to cease further arrests under GST pending legislative amendments. Additionally, the CBIC has issued circulars to clarify tax notices and adjudication processes, aiming to reduce unnecessary queries during registration. The GST Council's consensus-driven approach is viewed by CII as a model for future economic reforms requiring inter-governmental coordination.

CII emphasized that this shift to trust-based governance requires industry to uphold voluntary compliance and responsible tax conduct. The confederation plans to work with its members, especially MSMEs, to promote better compliance practices. These reforms are expected to mitigate risks like uncertainty, legal costs, and management disruption for businesses, particularly MSMEs and new entrepreneurs, while maintaining safeguards against serious tax evasion. Consistent implementation across all jurisdictions will be key to realizing their full impact.