The Central Board of Indirect Taxes and Customs (CBIC) has introduced new rule 86B vide notification number 94/2020 dated 22nd December, 2020. Rule 86B is made effective from 1st January 2021.
- Rule 86B limits the use of input tax credit (ITC) available in the electronic credit ledger for discharging the output tax liability. This rule has an overriding impact on all the other CGST Rules.
- This rule is applicable to registered persons having taxable value of supply (other than exempt supply and zero-rated supply) in a month which is more than Rs.50 lakhs. The limit has to be checked every month before filing each return.
- The applicable registered persons cannot use ITC in excess of 99% of output tax liability.
Exceptions to the Rule:-
1. If the persons mentioned below have paid more than Rs.1 lakh as Income Tax under Income Tax Act, 1961
- The registered person or
- Proprietor, karta or Managing Director of the registered person or
- Any of the partners or whole time directors or any other person as the case may be.
2. If the registered person under concern has received a refund of amount greater than Rs.1 lakh in the preceding financial year on account of export under LUT or due to inverted tax structure.
3. If the registered person under concern is any of the following:
- Government department
- Public sector undertaking
- Local authority
- Statutory Authority
Note: - If any Register person on which above rule applicable and not comply such rule in that case his registration liable to be cancelled as suo moto by the Tax officer under section 29 of CGST Act.
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