Govt Introduced new Rule 86B restricting the use of Input Tax Credit (ITC) for discharging the output liability

[Notification No 94/2020-CT dated 22.12.2020]

The rule is effective from 1st January 2021

Applicability of Rule

This rule is applicable to the registered person whose value of taxable supply other than exempt supply and export, in a month exceeds fifty lakh rupees.

Rs 50 lakhs limit to be checked for each month

As per said rule, a taxpayer cannot use Input Tax Credit in excess of 99% of output tax liability.

Non-applicability

This Rule is not applicable in the following cases:-

1. Where the registered person deposited more than Rs 1 lakh rupees as Income Tax under the Income-tax Act, 1961 in each of the last two financial years

2. Wherein registered person has received a refund more than Rs 1 lakh rupees in the preceding financial year on account of export under LuT or inverted tax structure

3. wherein cumulatively up to the said month in the current financial year registered person has discharged his output tax liability in cash which is in excess of 1% of the total output tax liability,

for example

In the FY 2020-2021, up to November 2020, output tax liability comes to Rs 10 lakh and taxpayer deposited Rs 10,000/- in cash up to Nov 2020 then this rule is not applicable

Imp Note

A taxpayer has to track each month that cummulative discharge of output tax liability in cash in the current FY is more than 1% up to the filing of return.

4. This rule not applicable to govt department, PSU, local authority

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