The Central Board of Indirect Taxes and Customs (CBIC) introduced Rule 86B in Notification No. 94 /2020 – Central Tax, dated 22 December 2020. This Rule will be effective from 1 January 2021. The intention of introducing this new Rule was to define the restrictions placed on the use of the amount available in the electronic credit ledger. In this article, we will explain:
As per the notification, from 1 January 2021, GST registered persons cannot pay more than 99% of their output tax liability from the amount available in their electronic credit ledger. In other words, taxpayers cannot use ITC above 99% of their output tax liability.
However, this Rule applies only to GST registered taxpayers, whose taxable value of supply (other than exempt supply and zero-rated supply) in a month, is more than INR 50 lakhs.
Example: Mr A is a GST registered person, and his taxable supply for January 2021 is INR 55,00,000. Let’s assume that the output tax liability of Mr A is INR 9,00,000 and the balance available in his electronic credit ledger is INR 9,50,000.
As per the new Rule 86B, Mr A can pay only INR 8,91,000 (9,00,000*99%) from his electronic credit ledger. The balance – INR 9,000 (9,00,000 – 8,91,000) has to be paid in cash.
Previously, taxpayers could utilise 100% of the available credit ledger balance to pay off the output tax liability. This new Rule 86B has limited the use of the available ITC balance.
Note: This Rule has an overriding force on all the other CGST Rules.
This Rule will not be applicable in cases where:
- The following people have paid more than INR 1,00,000 as income tax under the Income-tax Act, 1961 in each of the last two financial years, for which the time limit to file the return of income (ITR) under subsection (1) of section 139 has expired:
- GST registered person or
- Proprietor, or Karta or the Managing Director of the GST registered person or
- Any of the Partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees of the GST registered person.
- The GST registered person has received a refund of more than INR 1,00,000 in the preceding financial year on account of unutilised input tax credit or export under LUT or due to the inverted tax structure.
- The GST registered person has discharged his/her liability towards output tax through the electronic cash ledger for an amount which is more than 1% of the total output tax liability (applied cumulatively, up to the said month in the current financial year).
- The GST registered person is a:
- Government Department; or
- Public Sector Undertaking; or
- Local authority; or
- Statutory body.
Note: The Commissioner or the officer authorised by the commissioner can remove the restrictions mentioned above after undertaking the required verifications and safeguards.