“Explore GST Rule 86B: Restrictions on utilizing electronic credit ledger for tax payments. Learn about turnover thresholds, exemptions, and practical examples for compliance. Stay informed to optimize your input tax credit usage.”
GST Rule 86B introduces restrictions on the utilization of the electronic credit ledger balance for tax liability payments. Taxpayers with a turnover exceeding INR 50 lakhs (excluding zero-rated and exempt supplies) in a month face limitations on credit usage. This article delves into the application of Rule 86B, explores scenarios of applicability, and provides examples for better comprehension.
Rule 86B applicable to all registered taxpayers having turnover (excluding zero rated and exempt supply) in excess of INR 50 Lakhs, in a particular month.
| Cases | I | II |
| Total Turnover in a Month | 60 Lakhs | 60 Lakhs |
| Total Turnover includes | ||
| (i) Export | 10 Lakh | 5 Lakhs |
| (ii) Exempted Supply | 0 | 4 Lakhs |
| (ii) Other taxable turnover | 50 Lakhs | 51 Lakhs |
| Whether Rule 86B Applicable | NO | YES |
| Remark | Total Turnover excluding zero rated or exempt supply does not exceed 50 lakhs | Total Turnover excluding zero rated or exempt supply exceed 50 lakhs |
Restriction on Use of Balance Available in Input Tax Credit (ITC) Ledger
The Registered Person can use the balance available in Input Credit Ledger up to 99% of the such tax liability that means 1% liability of such tax require to be paid through cash ledger only. However, balance available in credit ledger is lesser than the liability under the same ledger then taxpayer can use 100% of Input tax credit available in respective ledger.
|
Example |
IGST | CGST | SGST | Total |
| Liability in a month | – | 4,59,000 | 4,59,000 | 9,18,000 |
| Balance Available in Input Credit Ledger | 5,00,000 | 3,00,000 | 3,00,000 | 11,00,000 |
| Set off of IGST Input | – | 2,50,000 | 2,50,000 | 5,00,000 |
| set off of CGST/ SGST Input | 2,04,410 | 2,04,410 | 4,08,820 | |
| Liability to be paid in cash | 4,590 | 4,590 | 9,180 | |
| Balance Available in Credit Ledger | – | 95,590 | 95,590 | 1,91,180 |
However, this restriction shall not be applicable if
Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:
Provided that the said restriction shall not apply where –
(a) the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, 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 under the Income-tax Act, 1961(43 of 1961) 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
(b) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (i) of first proviso of sub-section (3) of section 54; or
(c) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (ii) of first proviso of sub-section (3) of section 54; or
(d) 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`; or
(e) the registered person is –
(i) Government Department; or
(ii) a Public Sector Undertaking; or
(iii) a local authority; or
(iv) a statutory body:
Provided further that the Commissioner or an officer authorized by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.]
Conclusion: GST Rule 86B has significant implications for registered taxpayers with a turnover exceeding INR 50 lakhs. Understanding its provisions, restrictions, and exemptions is crucial to remain compliant. The article clarifies the applicability of the rule through examples, providing taxpayers with the necessary knowledge to navigate their input tax credit utilization effectively.
Author Bio
The word “and restrictions” in Section 49(4) is inserted vide Finance Act, 2022 with effect from 01.10.2022. Whether it restricts the applicable date of Rule 86B wef 01.01.2021
Section 49(12) has been inserted to provide a legal backing for the rule 86B in Finance Bill 2022 which is also applicable from 01.10.2022. extracts of the same is as under:
(12) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, subject to such conditions and restrictions, specify such maximum proportion of output tax liability under this Act or under the Integrated Goods and Services Tax Act, 2017 which may be discharged through the electronic credit ledger by a registered person or a class of registered persons, as may be prescribed.”
Article is good… But seems less emphasis on clarity between monthly turnover or yearly.