Rule 86b applicability

Rule 86B requires a mandatory 1% cash payment of the total output tax liability for large taxpayers. Since Compensation Cess is a component of the "output tax" for applicable goods, it is included in the calculation, and the 1% cash requirement applies to the total tax basket.

Rule 86B requires at least 1% of output tax liability to be paid in cash, subject to the Rs 50 lakh monthly taxable turnover threshold.

On your specific question about Compensation Cess: Rule 86B refers to output tax as defined under the CGST Act. Compensation Cess is levied under the GST (Compensation to States) Act 2017 and is technically a separate levy, not CGST or SGST. The rule as currently worded applies to CGST and SGST liability only. Cess liability needs to be paid separately anyway and is not offset by CGST/SGST ITC.

Practically, this means:
- Calculate 1% of your total CGST + SGST output tax liability for the month
- At least that 1% must come from cash ledger, not ITC
- Compensation cess liability is paid separately from its own cess credit ledger

Exceptions to Rule 86B: The rule does not apply if turnover in the previous financial year was Rs 6 crore or less, or if the taxpayer has received a refund of Rs 1 lakh or more in the preceding financial year under zero-rated exports.

This [Rule 86B guide](https://taxgarden.in/blog/rule-86b-gst-1-percent-cash-payment-restriction-india-2026) covers applicability, exceptions, and month-wise calculation with examples.