Rule 86B was inserted vide notification number 94/2020 dated 22nd December, 2020 and was made effective from 1st January 2021. As per this Rule, the registered persons having taxable value of supply (other than exempt supply and zero-rated supply) in a month which is more than Rs.50 lakh 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.
The restriction under Rule 86B is not applicable to following persons:
- If the following persons 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 such registered person 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 such registered person 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 such registered person is any of the following:
- Government department
- Public sector undertaking
- Local authority
- Statutory Authority
GSTN has now introduced a new tab on the GST portal in regard to implementation of Rule 86B, which restricts the use of the amount available in the Electronic Credit Ledger as per provisions of said Rule.
For ready reference of our readers the snap of the window of GST portal in regard to above is given below:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
