Rule 86B

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 in a month which is more than Rs.50 lakh. 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. In simple words, more than 99% of the output tax liability cannot be discharged by using input tax credit.

Exceptions to the Rule:

• If the persons mentioned below have paid more than Rs.1 lakh as Income Tax under Income Tax Act, 1961
  • The registered person
  • Proprietor, karta or Managing Director of the registered person
  • Any of the partners or whole time directors or any other person as the case may be.
• 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.
• If the registered person under concern has discharged his liability towards output tax by electronic cash ledger for an amount in excess of 1% cumulatively of the total output tax liability up to the said month in the current financial year.
• If the registered person under concern is any of the following:
  • Government department
  • Public sector undertaking
  • Local authority
  • Statutory Authority

As per rule 86B the taxpayer having taxable sales value of more than 50 lakhs cannot pay more than 99% of liability via Input tax credit (ITC). There are some exceptions to this rule