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Everything to Know about Rule 86B with the help of Illustrations

In this article, we will discuss everything about Rule 86B with the help of Illustrations. Further, we will also discuss Key queries related to compliance of Rule 86 B including the case where Taxpayers fails to comply with Rule 86B and Department detects then how it can be regularised.


As per Rule 86B of CGST Rules, in case, Taxable Supply (other than exempt supply and zero-rated supply i.e. Exports & Supply to SEZ) is more than Fifty Lakhs in a month, amount available in Credit Ledger can not be used to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability i.e. 1% of the Tax Liability needs to be discharged in Cash.


Exemptions from Rule 86B


1. Income Tax More than One Lakhs in Last Two Years

If, Taxpayer himself, or

Proprietor or

karta or

Managing Director or

Any of its two Partners, or

Whole-time Directors, or

Members of Managing Committee of Associations or Board of Trustees, as the case may be,


have paid more than one lakh rupees as income tax in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or


2. Refund of More than One Lakhs on Account of Exports & SEZ

Taxpayer has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (i) of first proviso of sub-section (3) of section 54 (i.e. Refund of unutilised ITC on account of Zero Rated Supplies )


3. Refund of More than One Lakhs on Account of Inverted Duty Structure.

The registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (ii) of first proviso of sub-section (3) of section 54


4. Has already discharged more than 1% in Cash up to the Month in the Current Financial Year

The registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year.


5. The registered person is -

(i) Government Department; or

(ii) a Public Sector Undertaking; or

(iii)a local authority; or

(iv) a statutory body:


Key-Queries


Whether Payment of RCM in Cash will be considered for calculation of 1%

No, since here Rule 86B talks about Payment of 1% of Output through Cash, and as per Section 2(82), RCM is not part of output Tax.


Whether Compliance is required for Registration wise or PAN Wise


Exemption as explained above needs to seen at PAN wise (i.e. Company Level), however compliance with Rule 86B needs to be checked at Registration wise.


What if Rule 86B is not complied and Department detected it during Audit


In case Taxpayer fails to comply with Rule 86B and paid 100% of the output Tax Liability through ITC and the same is being detected by the Department during audit.


In this case, Taxpayer needs to deposit 1% of the Tax amount in cash along with interest and can claim refund of Tax already paid through ITC under category " Excess Tax Paid" as per extant provisions of law.


Illustration for Implementation of Rule-86B


As per law, there appears to be no absolute clarity regarding the issue that whether compliance with Rule 86B is to be carried out Head wise separately or on total basis.


Since, Rule has been notified for CGST and SGST separately, it should be implemented Head wise, however, since Payment of IGST can also be done using CGST and SGST, it appears that it should be checked on total basis. i.e. 1% of total output tax liability should be in cash.


Illustration-1

Total Output Tax Liability Rs. 10,00,000 (C+S+I)

Total ITC Available: Rs. 11,00,000 (C+S+I)

Total Cash Payment Required: Rs. 10,000 (C+S+I).


Illustration-2

Total Output Tax Liability up to August-2023: Rs. 5 Crores

Total Cash Payment up to August-2023: Rs. 50 Lakhs


September-2023

Total Output Tax Liability Rs. 10,00,000 (C+S+I)

Total ITC Available: Rs. 11,00,000 (C+S+I)

Total Cash Payment Required: Rs. NIL (C+S+I).


As Cash Liability discharged till month of September is (50 Lakhs/5.10 Crores)= 9.8%


Happy Reading !!! Happy Learning !!!


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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.












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