Rule 86B under GST | Restriction on Utilisation of ITC in Electronic Credit Ledger

INTRODUCTION

Input tax credit plays a very important role in GST by avoiding cascading effect of taxation. The ITC available in the electronic credit ledger could always be fully utilised for discharging the output tax liability. The new Rule 86B has limited the use of ITC balance for paying its output tax liability.

Once ITC availed as per Section 16 of CGST Act, 2017 (Rule 36) is credited to electronic credit ledger. Once ITC credited in electronic credit ledger it can be used for payment of liabilities towards outward supply and as per the provisions contained in Section 49 of CGST Act, 2017. However, Rule 86B restrict utilisation of ITC. That means Rule 86B is overriding all other rules.

Introduction of Rule 86B will be no impact on micro and small business as this rule is applicable only if the turnover is more than Rs. 50,00,000/- in a month (Excluding ZERO rated Sales & EXEMPTED Sales). The reason behind this is to control the issue of fake invoices to use the fake ITC to discharge the liability. Further, this rule will prevent showing high turnover without having any financial creditability.

Now, will discuss what Electronic Credit Ledger is?

ELECTRONIC CREDIT LEDGER (Rule 86)

The electronic credit ledger shall be maintained in FORM GST PMT-02 for each registered person who is eligible for an input tax credit under the GST Act, 2017 and every claim of the input tax credit shall be credited to the said ledger.

Now, we will discuss about Rule 86B.

RESTRICTION ON UTILISATION OF ITC IN ELECTRONIC CREDIT LEDGER (RULE 86B)

As per these rule, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of 99% of such output tax liability.

APPLICABILITY

This rule is applicable to a registered person having a value of taxable supply other than EXEMPT supply & Zero-rated supply in a month exceeds fifty lakh rupees (50 Lakhs).

That means limit has to be checked every month before the filing of each return.

EXCEPTION

Rule 86B is not applicable to the registered person even if the value of taxable supply other than EXEMPT supply & Zero-rated supply in a month exceeds fifty lakh rupees (50 Lakhs) provided following conditions are satisfies.

(I) If the persons mentioned below have paid more than Rs.1 lakh as Income Tax under Income Tax Act, 1961in 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.

1) The registered Person.
2) Proprietor or Karta of registered Person.
3) Managing Director or whole-time director of registered Person.
4) Any of Two Partners of the registered person.
5) Members of the managing committee of Association or board of trustees.

OR

(II) 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 (Zero-rated supplies made without payment of Tax.)

OR

(III) 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 (where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council)

OR

(IV) 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

(V) The registered person is,

(i) Government Department OR
(ii) A Public Sector Undertaking OR
(iii) A local authority OR
(iv) A statutory body

REMOVAL OF RESTRICTION BY OFFICER

The Commissioner or an officer authorised by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.