Categories: Gst Compliance

Why was Rule 86B introduced under GST regime?

Rule 86B under the GST Regime Rule 86B is a provision introduced under the Goods and Services Tax (GST) regime to restrict the use of Input Tax Credit (ITC) for paying output tax liability. Applicability: This rule applies to registered persons whose taxable value of supply (excluding exempt supply and zero-rated supply) in a month exceeds Rs. 50 lakh.

Key Provisions on Rule 86B under the GST Regime :

  • Purpose: The primary aim of Rule 86B is to prevent tax evasion and fraud. It targets taxpayers who claim fake ITC and do not pay any tax in cash.
  • Compliance with Rule 86B is determined based on the GST returns filed by the firm, rather than the Income Tax Returns (ITR) of the firm or its directors.
  • This rule ensures that there is a minimum cash payment of 1% of the output tax liability, enhancing the authenticity and accountability of the ITC claimed by businesses.
  • Restriction on ITC Usage: Such registered persons cannot use more than 99% of their ITC balance to discharge their output tax liability. They must pay at least 1% of their output tax liability in cash.
  • Exceptions of Rule 86B under the GST Regime

    • Taxpayers who have paid more than Rs. 1 lakh in income tax in the preceding two financial years.
    • GST Taxpayers who have received refunds of unutilized ITC on account of zero-rated supplies or inverted duty structure of more than Rs. 1 lakh in the preceding financial year.
    • Taxpayers who have made cash payments exceeding 1% of their total tax liability for the current financial year up to the said month.

Conclusion

GST Rule 86B is a measure to ensure that registered persons with significant taxable supplies make a minimum cash payment of their output tax liability, reducing the scope for fraudulent ITC claims and increasing tax compliance.

Rule 86B is a new rule introduced under the GST regime that restricts the use of input tax credit (ITC) available in the electronic credit ledger for paying the output tax liability. This rule is applicable to registered persons who have a taxable value of supply (other than exempt supply and zero-rated supply) in a month exceeding Rs. 50 lakh. According to this rule, such persons cannot use more than 99% of their ITC balance to discharge their output tax liability, and they have to pay at least 1% of their output tax liability in cash. This rule is aimed at preventing tax evasion and fraud by unscrupulous taxpayers who claim fake ITC and do not pay any tax in cash.

The rule 86B is to be checked on the basis of the GST returns of the firm, not the ITR of the firm or the directors

Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

Recent Posts

ICAI Guidance on Auditors Examining VDA Transactions

ICAI Guidance on Auditors Examining VDA Transactions The ICAI Exposure Draft expects auditors to examine VDA transactions through existing Form… Read More

1 day ago

ICAI Exposure Draft (July 2026) on Tax Audit Guidance Note

ICAI Exposure Draft (9 July 2026) on Tax Audit Guidance Note The ICAI Direct Taxes Committee has released an exposure… Read More

1 day ago

IBBI 2026 Liquidation Framework: Faster & Transparent

Overview on Amendments to the IBBI Liquidation Regulations (2026) The document proposes major changes to India's liquidation framework under the… Read More

3 days ago

Why Does USA Frequently Comment on India’s Domestic Laws?

India has consistently maintained that the power to enact laws rests exclusively with its Parliament, acting within the framework of… Read More

4 days ago

Alternative Tax Regime for Company & Co-operative Societies

Alternative (lower) tax regimes are available to assessees other than individuals/HUFs under the Income Tax Act. What does it mean?… Read More

5 days ago

ITR Filing for AY 2026-27: Complete Guide for Taxpayers

ITR Filing Assessment Year 2026-27: Due Dates, New ITR Changes, Revised Return Rules & Compliance Guide The due dates for… Read More

5 days ago
Call Us Enquire Now