Business & Economics

GST Council Tables GST 2.0 Package: Lifts ITC Block on ≤13-Seat Vehicles, Requires Court Nod for Tax Arrests

Draft decisions circulated before the 8 Oct 2026 Council meeting scrap Section 17(5) limits so firms can claim full input-tax credit on passenger vehicles (≤13 seats) and channel any future GST arrests through the courts, signalling a shift from punitive policing to credit-led facilitation.

By Underlines TeamOctober 9, 2026

Focusing Facts

If passed, businesses may opt for 18 % GST with unrestricted ITC or 5 % GST with limited ITC on cars, vans and EVs seating up to 13; credit will also extend to insurance, repairs and leases.
The same package raises the prosecution trigger for GST offences five-fold—from ₹1 crore to ₹5 crore—and strips tax officers of unilateral arrest powers, mandating judicial warrants.
Council papers propose freezing GST rate changes to a single annual window with adjustments effective 1 April 2027.

India is replaying a familiar cycle: when MODVAT was introduced in 1986 the Finance Ministry soon widened credit rules after lawsuits choked the system—much like today’s litigation over blocked ITC. By unblocking credits on small passenger vehicles and throttling arrest powers, the GST Council is tilting the nine-year-old regime toward the EU-style ‘credit-flow first, enforcement later’ model that matured only after the 1958 French VAT reforms. If implemented, these tweaks push GST from an intrusive, officer-driven framework to a data-driven, trust-based architecture, echoing the Income-tax Act’s 2000s shift to computerised assessments. On a 100-year arc, such procedural liberalisation—not headline rate cuts—often determines a tax’s legitimacy; whether this moment endures will hinge on states’ willingness to trade short-term coercive powers for the long-game of voluntary compliance and broader tax bases.

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