Rule 86(B) Applicability

750 views

Save Share

Mehul Tailor

45 Points Posted on 17 September 2026

1. ONE OF OUR CLIENT TAKEN NEW GST REGISTRATION IN APRIL 2026 IN PARTNERSHIP NATURE. AND NOW MONTHLY TURNOVER CROSS 50 LAKH PER MONTH. AND RULE 86(B) APPLICABLE IF MONTHLY TURNOVER CROSS 50 LAKH. ONE OF PARTNER WAS PAID 1 LAKH INCOME TAX IN PREVIOUS TWO FINANCIAL YEARS. SO QUESTION RULE 86(B) IS APPLICABLE IN THIS PARTNERSHIP FIRM GSTIN AND SHOULD THEY LIABLE TO PAY 1% GST TAX PAYMENT. PLEASE PROVIDE ME GUIDANCE.

2. ONE OF OUR CLIENT TAKEN NEW GST REGISTRATION IN APRIL 2026 IN PROPRIETURE NATURE. AND NOW MONTHLY TURNOVER CROSS 50 LAKH PER MONTH. AND RULE 86(B) APPLICABLE IF MONTHLY TURNOVER CROSS 50 LAKH. PROPRIETOR OF FIRM WAS NOT PAID 1 LAKH INCOME TAX IN PREVIOUS TWO FINANCIAL YEARS. SO QUESTION RULE 86(B) IS APPLICABLE IN THIS PROPRIETORSHIP FIRM. AND SHOULD HE LIABLE TO PAY 1% GST TAX PAYMENT. PLEASE PROVIDE ME GUIDANCE.

Replies (2)

Quick Summary

This discussion clarifies the applicability of GST Rule 86(B) for businesses exceeding ₹50 lakh monthly turnover. For partnership firms, the 1% cash payment rule generally doesn't apply if the firm itself has paid over £1 lakh in income tax in the last two financial years under its own PAN. However, for proprietorships, the proprietor's personal income tax payments count towards this threshold, meaning Rule 86(B) is more likely to apply if the proprietor hasn't met the income tax criteria.

Aashok Kumar Sharma

Finance/Compliance Consultant

75659 Points Posted on 17 September 2026

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.

Mehul Agrawal

CA in Practice

1028 Points Posted on 17 September 2026

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.