Rule: 86B -Restriction on use of amount available in electronic credit ledger
This rule is having over-riding effect on any other rule of CGST Rules, 2017 and it is effective from 1st January, 2021 wide Notification No: 94/2020 dated 22nd Dec, 2020.
To whom it is applicable?
This rule is having over-riding effect on any other rule of CGST Rules, 2017 and it is effective from 1st January, 2021 wide Notification No. & Date: 94/2020 dated 22nd December, 2020. This rule is applicable to all registered taxpayers having taxable supply of more than Rs. 50 Lakhs in any month. (the applicability of the rule is for a particular month only, irrespective of yearly turnover). Taxable supply does not include exempt supply and zero-rated supply
What is the restriction in using ITC?
While discharging the output tax liability for a month, ITC shall be utilized only to the extent of 99% of output tax liability subject to availability of ITC. it means that minimum 1% of the output tax liability shall be discharged in cash using e-cash ledger
Example: M/s XYZ Enterprises is having Rs. 1 crore as total taxable value of turnover and suppose tax is payable @ 18% hence the total liability is Rs. 18,00,000. Now irrespective of the ITC available in your electronic credit ledger Rs. 18,000 has to be paid through cash ledger. In simple words 1% of total output tax liability has to be paid through cash ledger.
Who are exempt to this rule?
- Person or the proprietor or the karta or the managing director or any of its two partners, whole time directors, members of managing committee of associations, or board of trustees.
- Received refund of more than Rs. 1 lakh in preceding financial year u/s 54(3)(i)- i.e., Zero rated supply
- Received refund of more than Rs. 1 lakh in preceding financial year u/s 54(3)(i)- i.e., Inverted duty structure.
- Cumulative tax paid through electronic cash ledger upto said month of current financial year is more than 1% of total output tax liability- Here tax liability from April, 2020 to December, 2020 is to be taken.
- If the registered person is Govt dept, PSU, a local authority or a statutory body.
Feel free to reach us for further discussion on the topic.
