GST Rule 86B is a provision under the Central Goods and Services Tax (CGST) Rules, 2017 in India, introduced to curb tax evasion and improve tax compliance.
Here’s a breakdown of Rule 86B:
What is Rule 86B?
Rule 86B restricts the use of Input Tax Credit (ITC) for discharging output tax liability.
Applicability:
It applies only if the value of taxable supply (excluding exempt and zero-rated supply) in a month exceeds Rs. 50 lakhs.
| Cases | I | II |
| Total turnover in a month | 60 Lakhs | 60 Lakhs |
| Total turnover includes | ||
| Export | 10 Lakhs | 5 Lakhs |
| Exempted supply | 0 Lakhs | 4 Lakhs |
| Other taxable turnover | 50 Lakhs | 51 Lakhs |
| Whether rule 86A Applicable | NO | YES |
| Remark | Total turnover excluding zero rated or exempt supply does not exceed Rs. 50 lakhs | Total turnover excluding zero rated or exempt supply does exceed Rs. 50 lakhs |
Restriction:
In such cases, the registered person cannot use more than 99% of the output tax liability through ITC. In other words, at least 1% of the GST liability must be paid in cash.
Exceptions (where Rule 86B does NOT apply):
1. If the proprietor/partner/managing director has paid more than Rs. 1 lakh as income tax in each of the last two financial years.
2. If the registered person has received a refund of over Rs. 1 lakh in the past year due to:
Unutilized ITC from zero-rated supplies (exports)
Inverted duty structure
3. If the registered person has paid output tax through cash ledger of more than 1% of total output tax liability cumulatively up to the said month.
4. Government departments, PSUs, local authorities, and statutory bodies are exempt.
Effective Date: This rule came into effect on 1st January 2021.
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