New Rule 86B inserted in GST

GST rule 86B, 99% ITC restricted, 1% of Output liability to be paid in cash

As per GST Notification number, 94/2020-Central Tax dated 22nd Dec 2020, GST rule 86B has been introduced which has imposed 99% restricted on ITC (Input Tax Credit) available in electronic credit ledger of Registered Person. This means 1% of Output liability to be paid in cash. This limitation is applicable where the value of taxable supply other than exempt supply and zero-rated supply, in a month, exceeds fifty lakh rupees.

The new Rule Reads as follows:

86B. Restrictions on use of amount available in electronic credit ledger.- Notwithstanding anything contained in these rules, the registered person shall not use the amount available in the electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine percent. 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 –

1. 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 an 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 a return of income under subsection (1) of section 139 of the said Act has expired; or
2. 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 the first proviso of sub-section (3) of section 54; or
3. 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 the first proviso of sub- section (3) of section 54; or
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; or
5. 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 authorised by him on this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.