In order to avoid fake invoicing and curb tax evasion the Central Board of Indirect Taxes and Customs (CBIC) has introduced new rule 86B vide notification number 94/2020 dated 22nd December, 2020. Rule 86B is made effective from 1st January 2021 wherein the registered person shall be required to pay 1% of GST liability in cash if total taxable supply (exclude zero rated and exempt supply) exceeds Rs. 50,00,000 in a month.

Example:- Mr. Prakash has made a sale of Rs. 1 crore of goods on which tax rate is 18% in month of January 2021. In this case, he can discharge his liability up to 99% through ITC and must pay Rs. 18,000 in cash, as per this rule.

Exception to RULE 86B Restrictions on use of amount available in electronic credit ledger:-

1) If the persons mentioned below have paid Rs.1 lakh or more in any of the one FY 19-20 or FY 20-21 as Income Tax under Income Tax Act, 1961.

  • The registered person
  • Proprietor, Karta or Managing Director of the registered person
  • Any of the partners or whole time directors or any other person as the case may be.

Note:- Tax paid as per the income tax Act, 1961 includes tax paid as TDS, Advance tax and self-assessment tax.

2) If Registered Person has received refund amount of Rs. 1,00,000 or more on account of unutilised input tax credit in FY 19-20.

3) If the registered person under concern is any of the following:

  • Government department
  • Public sector undertaking
  • Local authority
  • Statutory Authority

4) 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.

Case 1 to Exception 4:- Whether to pay in cash for Month of Jan-21 in following scenario ?

Month Output Liability ITC Paid in Cash
Apr-20                1,00,000              50,000            50,000
May-20                1,20,000           1,20,000                     –
Jun-20                1,40,000           1,40,000                     –
Jul-20                1,60,000           1,60,000                     –
Aug-20                1,80,000           1,80,000                     –
Sep-20                2,00,000           2,00,000                     –
Oct-20                1,40,000           1,40,000                     –
Nov-20                1,60,000           1,60,000                     –
Dec-20                1,80,000           1,80,000                     –
Jan-21                2,80,000           2,80,000                     –
Total              16,60,000        16,10,000            50,000
1% of Total Output Liability            16,600

In above case there is no need to pay cash if entire liability can be offset by using eligible ITC.

Case 2 to Exception 4:- Whether to pay in cash for Month of Jan-21 in following scenario ?

Month Output Liability ITC Paid in Cash
Apr-20                1,00,000              90,000            10,000
May-20                1,20,000           1,20,000                     –
Jun-20                1,40,000           1,40,000                     –
Jul-20                1,60,000           1,60,000                     –
Aug-20                1,80,000           1,80,000                     –
Sep-20                2,00,000           2,00,000                     –
Oct-20                1,40,000           1,40,000                     –
Nov-20                1,60,000           1,60,000                     –
Dec-20                1,80,000           1,80,000                     –
Jan-21                2,80,000           2,80,000                     –
Total              16,60,000        16,50,000            10,000
1% of Total Output Liability            16,600

In above case there is taxpayer has to pay Rs. 2,800 (ie 2,80,000 *1/100) in cash and balance 99% by using available ITC.

****

DISCLAIMER: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and / or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional. In case of any query or any clarification required you can reach me out at [email protected]

Author Bio

Qualification: CA in Practice
Company: U B G & Company
Location: Mumbai, Maharashtra, IN
Member Since: 03 Sep 2020 | Total Posts: 3

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2 Comments

  1. SUDARSHAN MEHTA says:

    DEAR KHUSHBOO,

    I APPRECIATE YOUR EFFORT IN PARTING THE KNOWLEDGE TO OTHERS. WE NEED A HEALTHY DISCUSSIONS, OPINIONS AND CLARIFICATIONS. FURTHER IN YOUR ABOVE DISCUSSION, I PERSONALLY FEEL THAT WHILE QUOTING AN EXAMPLE IN THE BEGINNING OF THE ARTICLE YOU HAVE ERRED. YOU HAVE MENTIONED 18000 AS TAX PAYABLE AGAINST 1 CRORE SALE AS 1% AS PER THE ABOVE MENTIONED RULE. THIS SHOULD BE Rs. 1,00,000. PLEASE NOTIFY IF I HAVE MISTAKEN IN UNDERSTANDING THE CONCEPT.

    1. Khushbu Chheda says:

      Dear Sudarshanji,

      Its 1,00,00,000 x 18% X 1% = 18,000

      and not 1,00,00,000 x 1% = 1,00,000

      Here its 1% of Tax liability and not 1% of sales.

      Thanks for taking interest in the article!

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