GST 2.0: Easier Rules, More Tax Credit, No Arrest Powers May Be on Way

GST 2.0 could focus on easier compliance, faster refunds, wider input tax credit and decriminalisation as the Council reviews the system.

By All India Story

5 Oct 2026, 3:14 PM IST 2 min read

GST 2.0 reforms may simplify tax compliance for businesses in India — The GST Council is considering a new phase of reforms focused on simplifying compliance and easing the burden on businesses.

GST 2.0 could bring another major overhaul of India’s goods and services tax system, with the focus shifting from rate rationalisation to making everyday compliance easier for businesses. The GST Council is expected to consider proposals covering input tax credit, registration, refunds, returns, litigation and enforcement.

The proposed changes could also include removing arrest powers under the GST law and raising prosecution thresholds, according to reports.

More Input Tax Credit Could Unlock Business Cash

One of the biggest areas under discussion is input tax credit (ITC). Businesses often have substantial amounts of credit locked in the GST system, affecting working capital and investment.

The Council may consider expanding ITC eligibility to expenses such as employee health and life insurance, outdoor catering, certain telecom infrastructure, pipelines and some vehicles.

Another proposal could allow genuine buyers to retain ITC even when a supplier fails to pay tax, with authorities instead recovering the dues from the defaulting supplier.

Changes could also address inverted duty structures, where businesses pay higher GST on inputs than the tax charged on their finished products.

Faster Registration, Refunds and Returns

GST registration could become faster through greater automation and risk-based verification. The Council may also expand biometric Aadhaar authentication to reduce fake registrations.

Businesses could receive greater flexibility to correct return-filing mistakes, potentially using invoice data to automatically identify and update discrepancies.

Faster refunds are another major demand, particularly for exporters and businesses affected by inverted duty structures. Including input services in refund calculations could further improve liquidity.

Push Towards Less Litigation

GST 2.0 could also bring a stronger focus on decriminalisation. Proposals reportedly include removing arrest powers under the GST law, increasing prosecution thresholds and rationalising penalties for non-fraud cases.

At the same time, GST collections remain strong. September 2026 gross GST collections reportedly crossed Rs 2 lakh crore, reaching Rs 2,03,521 crore, reflecting 14.7% year-on-year growth.

If approved, the proposed measures could mark a significant shift in GST policy — from simply changing tax rates to creating a more technology-driven, risk-based and business-friendly compliance system.