In order to limit the use of Input Tax Credit (ITC) amounts in the Electronic Credit Ledger (ECL), the Goods and Services Tax Network (GSTN) has added a new tab to the GST Portal called Rule-86B. The new tab is accessible from the Services menu.

There are restrictions outlined in Rule 86B regarding the utilisation of Input Tax Credits (ITCs) from the electronic credit ledger to settle output tax liabilities. This rule has precedence over all other CGST Rules.

Rule 86-B was added to the Central Goods and Services Tax Rules 2017 as a new addition to combat fraudulent invoicing transactions by Notification No. 94/2020 – Central Tax, which was released on December 22, 2020.

According to this rule, a registered person may not use more than 99% of the funds in their electronic credit ledger to pay their output tax liability if the value of taxable supplies (excluding exempt and zero-rated supplies) in a month exceeds Rs. 50 lacs. This rule, as previously indicated, supersedes all other CGST rules. The 1% will remain and such portions will not be refunded. This implies that 1% of the output liability must be paid in cash.

Rule 86b Exceptions

This Rule 86b will not be applicable in cases where:

i) The following people have paid more than INR 1,00,000 as income tax under the Income-tax Act, 1961 in each of the last two financial years, for which the time limit to file the return of income (ITR) under subsection (1) of section 139 has expired:

a. GST registered person or

b. Proprietor, or Karta or the Managing Director of the GST registered person or

c. Any of the Partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees of the GST registered person.

ii) The GST registered person has received a refund of more than INR 1,00,000 in the preceding financial year on account of unutilised input tax credit or export under LUT or due to the inverted tax structure.

iii) The GST registered person has discharged his/her liability towards output tax through the electronic cash ledger for an amount which is more than 1% of the total output tax liability (applied cumulatively, up to the said month in the current financial year).

iv) The GST registered person is a:

a. Government Department; or

b. Public Sector Undertaking; or

c. Local authority; or

d. Statutory body.

Note: The Commissioner or the officer authorised by the commissioner can remove the restrictions mentioned above after undertaking the required verifications and safeguards.

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