Rule 86B under GST

WHAT IS RULE 86B UNDER GST?

New rule has been introduced by The Central Boards of Indirect Taxes and Customs (CBIC) on 22^nd December, 2020 but came in effect from 1^st January, 2021.

RESTRICTIONS imposed by Rule 86B:

Rule 86B imposes restriction on registered persons having taxable value of supply other than exempt supply and zero rated supply in a month more than Rs. 50 lakh. As per this rule a registered person is allowed to utilize 99% of input tax credit from output tax liability rest 1% have to pay by cash.

Government has introduced this rule taking under consideration those large amount tax payers who try to avoid payment of tax by utilizing input tax credit generated through fake purchase invoices. Micro and small tax payers will not be affected from this rule.

The MAIN PURPOSE of introduction of this rule is to restrict issuance of fake purchase invoices or fake input tax credit to discharge their tax liability and also to restrict the fraudsters from showing high turnover without having any financial credibility.

Let us try to understand this rule by taking an EXAMPLE:

Mr. Sanjeev has made sales of Rs. 1.20 cr of goods on which tax rate is 12%. On this sale, output tax liability shall be Rs. 14.4 lakh. In this case he is liable to discharge 99% of output tax liability by claiming input tax credit and rest 1% i.e. Rs. 14,400 has to be paid by cash.

EXCEPTIONS TO THIS RULE:

However there are certain exceptions to this rule which are as follows:

1. The following persons who have paid more than Rs. 1 lakh as Income tax under Income tax Act, 1961

1. The registered person
2. The Proprietor, karta or managing director of the registered person
3. Any of the partners or whole time directors or any other person as the case may be

2. The registered person who has received refund from exports under LUT or due to inverted tax structure i.e. when GST paid is more than the output tax liability under GST is more than Rs. 1 lakh in the preceding financial year.
3. The registered person who pays output tax liability by electronic cash ledger in excess of 1% of the total output tax up to the said month in the current financial year.
4. If the registered person under the following concern the they are also exempt from this rule:

1. Government department
2. Public sector undertaking
3. Local undertaking
4. Statutory Authority