Rule 86(B) Applicability

• Partnership Firm: Rule 86(B) does not apply (due to the partner meeting the Income Tax payment criteria), so 1% mandatory cash payment is not required.

• Proprietorship Firm: Rule 86(B) applies (turnover > ₹50L and proprietor failed the Income Tax criteria), so 1% must be paid via the electronic cash ledger.

On the exception clause (tax paid over Rs 1 lakh in each of the last two FYs), the key point both queries are missing is whose PAN the tax payment has to be under.

1) Partnership case: the "registered person" for GST purposes is the firm itself (its own PAN/GSTIN). Income tax of Rs 1 lakh+ paid personally by one partner, under the partner's individual PAN, does not satisfy the exception - it has to be tax paid under the firm's own PAN. If the firm itself hasn't paid income tax of that magnitude, Rule 86B applies and 1% of output tax liability has to be discharged in cash, unless another exception applies (refund of unutilised ITC exceeding Rs 1 lakh, government body/PSU status, TDS/TCS deposited over Rs 1 lakh in the current FY, etc).

2) Proprietorship case: here the proprietor's PAN and the firm's PAN are the same, so the proprietor's personal income tax payment does count. Since he hasn't paid Rs 1 lakh+ in each of the last two FYs, this exception isn't available, so Rule 86B applies here too - subject to checking the other exceptions before finalising the 1% cash payment requirement.

Worth going through the full exception list clause-by-clause for both clients rather than relying on the income-tax-paid test alone.