Rule: 86B -Restriction on use of amount available in electronic credit ledger
This rule is having an overriding 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 an overriding 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 a 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 a minimum of 1% of the output tax liability shall be discharged in cash using an e-cash ledger
Example: M/s XYZ Enterprises is having Rs. 1 crore as the 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 a cash ledger.
Who are exempt from this rule?
- The person or the proprietor or the Karta or the managing director or any of its two partners, whole-time directors, members of the 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 up to a 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 the Govt dept, PSU, a local authority, or a statutory body.
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