GST Council’s October Reforms: What Changes for Small Businesses

By Sakhi Sangini News Desk Last updated Oct 31, 2026

In short: At its 57th meeting on 8 October 2026, the GST Council recommended a long list of changes that make GST less risky and less paperwork-heavy for small businesses. The biggest are automatic registration for many small taxpayers, lower penalties, no notices over small amounts, and removing the power to arrest under GST. Most of these still need a notification, circular or law amendment before they take effect, and only a few have dates.

1. Easier registration and exit

Automatic registration: no officer intervention for applicants whose input tax credit (ITC) passed on to buyers is no more than ₹2.5 lakh a month. Most micro businesses selling to consumers fall in this group.
Automatic cancellation: in specified cases, cancellation applications are accepted automatically once returns are filed and dues paid. This helps if you’re closing or restructuring.
Online sellers in other states: a new route lets small e-commerce sellers register in a state where they have no office by using the platform’s warehouse address. It starts on 1 November 2026 (see our online sellers update).

2. Lower penalties, fewer notices

No show cause notice where the tax involved is below ₹10,000.
General penalty cut from ₹25,000 to ₹10,000.
Minimum penalty of ₹10,000 removed in non-fraud cases.
Penalty cut to 5% in non-fraud cases if you pay the tax and interest within 30 days of the order (60 days for cases under Section 74A).
Late fee waived for businesses with turnover up to ₹5 crore, if a delayed return is filed by the end of the month it was due.
Common guidelines for demand notices and orders, including a personal hearing.

For a home business that misses a deadline or makes a small error, these changes reduce the risk of a ruinous bill.

3. No more GST arrests; prosecution only for big cases

Arrest powers are withdrawn completely by omitting Section 69.
The threshold for prosecution rises from ₹1 crore to ₹5 crore, and some offences are narrowed.
E-way bill checks: goods can be stopped only on specific intelligence, approved by a Joint Commissioner or above. There are no stops in transit states, and goods in transit can’t be confiscated.

4. A simpler return for small B2C sellers (proposed)

The Council approved in principle an optional scheme, ARQP, for taxpayers with turnover up to ₹5 crore who sell only to consumers: one annual return, with tax paid quarterly. Details are still to come. If most of your customers are individuals, not businesses, watch for it. It could cut your filings to a handful a year.

5. Faster refunds

Excess cash in the electronic cash ledger is refunded automatically and in full.
Refund acknowledgement within 10 days instead of 15. If none is issued, it counts as acknowledged.
For exporters (zero-rated supplies) and businesses with inverted duty, 90% of the refund is sanctioned automatically on a provisional basis.
From 1 November 2026: refunds of accumulated ITC on input services under an inverted duty structure, for ITC taken on or after that date.
From 1 April 2027: refunds of ITC on capital goods, spread over 60 months.

6. Rate changes worth knowing

Psyllium seeds (isabgol) move to nil GST.
All toys under heading 9503 are now covered by the relevant notification entries.
Restaurants, outdoor caterers, hotels (rooms up to ₹7,500 a day) and gyms can take limited ITC on services in the same line of business.

Quick answers

Is any of this law yet? Not automatically. The Council’s release says recommendations take effect only through circulars, notifications or law amendments. The arrest and prosecution changes need the GST Act to be amended.

I’m below the GST threshold. Does this matter? Yes, if you plan to sell on marketplaces or across states, where registration is often required. Lower penalties and automatic registration make it a smaller step.

What to do now

If you’re not registered because GST felt risky, automatic registration and lower penalties make it easier. Being registered also lets you sell on more platforms.
If you’re on the composition scheme, compare it with ARQP once the details are out.
Keep filing on time. The late-fee waiver only works if you file within the same month.
Ask your CA which changes have been notified before you rely on them.

Sakhi Sangini News Desk · 31 October 2026. Facts are as reported on the dates shown. Council recommendations take effect only once notified, so confirm with the official source before you act. General information, not legal, tax or financial advice.

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