{"id":30971,"date":"2026-01-18T00:38:47","date_gmt":"2026-01-17T19:08:47","guid":{"rendered":"https:\/\/carajput.com\/blog\/?p=30971"},"modified":"2026-01-18T00:39:27","modified_gmt":"2026-01-17T19:09:27","slug":"rule-86b-under-gst","status":"publish","type":"post","link":"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/","title":{"rendered":"All about Rule 86B under GST\u2013 Restriction on ITC Utilisation"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Page Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d6d884e5db4\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d6d884e5db4\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Overview_about_Rule_86B_under_GST_%E2%80%93_Restriction_on_ITC_Utilisation\" title=\"Overview about Rule 86B under GST \u2013 Restriction on ITC Utilisation \">Overview about Rule 86B under GST \u2013 Restriction on ITC Utilisation <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#When_Does_Rule_86B_Apply\" title=\"When Does Rule 86B Apply?\">When Does Rule 86B Apply?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Who_Is_Exempt_from_Rule_86B\" title=\"Who Is Exempt from Rule 86B?\">Who Is Exempt from Rule 86B?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#How_Compliance_Is_Monitored_by_GST_Dept\" title=\"How Compliance Is Monitored by GST Dept.\u00a0\">How Compliance Is Monitored by GST Dept.\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Practical_Points_related_to_Rule_86B_under_Goods_and_Services_Tax\" title=\"Practical Points related to Rule 86B under Goods and Services Tax\">Practical Points related to Rule 86B under Goods and Services Tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#In_Summary_Judicial_Interpretation\" title=\"In Summary: Judicial Interpretation\">In Summary: Judicial Interpretation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Frequently_Asked_Questions_on_Rule_86B_under_GST\" title=\"Frequently Asked Questions on\u00a0Rule 86B under GST\">Frequently Asked Questions on\u00a0Rule 86B under GST<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Q1_Is_Rule_86B_applicable_to_all_GST-registered_businesses\" title=\"Q.1: Is Rule 86B applicable to all GST-registered businesses?\">Q.1: Is Rule 86B applicable to all GST-registered businesses?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Q2_Does_the_INR_50_lakh_threshold_include_exempt_or_zero-rated_supplies\" title=\"Q.2:\u00a0Does the INR 50 lakh threshold include exempt or zero-rated supplies?\">Q.2:\u00a0Does the INR 50 lakh threshold include exempt or zero-rated supplies?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Q3_What_happens_if_I_dont_comply_with_Rule_86B\" title=\"Q.3: What happens if I don\u2019t comply with Rule 86B?\">Q.3: What happens if I don\u2019t comply with Rule 86B?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/carajput.com\/blog\/rule-86b-under-gst\/#Q4_Can_unused_input_tax_credit_be_refunded_due_to_Rule_86B\" title=\"Q.4: Can unused input tax credit be refunded due to Rule 86B?\">Q.4: Can unused input tax credit be refunded due to Rule 86B?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><img loading=\"lazy\" decoding=\"async\" class=\"alignnone  wp-image-30972\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/01\/86B.jpeg\" alt=\"Rule 86B under GST \u2013 Restriction on ITC Utilisation\" width=\"1167\" height=\"1741\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/01\/86B.jpeg 986w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/01\/86B-201x300.jpeg 201w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/01\/86B-686x1024.jpeg 686w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/01\/86B-768x1146.jpeg 768w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/01\/86B-800x1194.jpeg 800w\" sizes=\"(max-width: 1167px) 100vw, 1167px\" \/><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"Overview_about_Rule_86B_under_GST_%E2%80%93_Restriction_on_ITC_Utilisation\"><\/span><span style=\"color: #000080;\"><strong>Overview about Rule 86B under GST \u2013 Restriction on ITC Utilisation <\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Rule 86B of the <em>Central Goods and Services Tax (CGST) Rules, 2017, <\/em>restricts the use of Input Tax Credit for payment of output <em>Goods and Services Tax <\/em>\u00a0in certain situations. This rule was implemented to curb fake invoicing &amp; improve tax discipline. Even if a taxpayer has enough input tax credit,\u00a0they must pay a minimum of 1% of GST liability in cash. with Effective From: 1 January 2021<\/p>\n<p>Before Rule 86B under the Central<em>\u00a0Goods and Services Tax (CGST) Rules, 2017<\/em>, businesses could pay their entire <em>Goods and Services Tax <\/em>liability using Input Tax Credit, which opened the door to fake invoicing, bogus Input Tax Credit claims, &amp; shell companies issuing Input Tax Credit without actual supply.\u00a0 To discourage these practices, Rule 86B introduces a financial deterrent by enforcing a compulsory minimum cash payment.\u00a0 This ensures real tax flow to the government, Greater authenticity of transactions, Improved compliance discipline<\/p>\n<p>The GST commissioner or authorized officer may remove the restriction after verification if satisfied. Useful in cases of ITC fraud suspicion being cleared, Exceptional business circumstances, and technical blockage despite genuine operations.<\/p>\n<div>\n<h2><span class=\"ez-toc-section\" id=\"When_Does_Rule_86B_Apply\"><\/span><span style=\"color: #000080;\"><strong>When Does Rule 86B Apply?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>It applies only if all the following are true:<\/p>\n<ul>\n<li>Monthly taxable turnover (excluding exempt\/zero\u2011rated) exceeds INR 50 lakh<\/li>\n<li>Output tax liability is being paid mainly through input tax credit.<\/li>\n<li>No applicable exemption is available<\/li>\n<\/ul>\n<p>Rule 86B under <em>Central Goods and Services Tax (CGST) Rules, 2017, applies<\/em>\u00a0to registered persons whose taxable supplies (excluding exempt and zero\u2011rated supplies) exceed INR 50 lakh in a month : If applicable, the taxpayer cannot use more than 99% of their Input Tax Credit to discharge output tax. A minimum of 1% of the output tax liability must be paid in cash through the Electronic Cash Ledger.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Who_Is_Exempt_from_Rule_86B\"><\/span><span style=\"color: #000080;\"><strong>Who Is Exempt from Rule 86B?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Rule 86B under <em>Central Goods and Services Tax (CGST) Rules, 2017, does<\/em>\u00a0<em>not<\/em> apply if ANY of these criteria are met:<\/p>\n<ul>\n<li>Income Tax Paid (&gt; INR 1 lakh) : In any of the last two FYs by Proprietor, Partner, Director, Karta, (and other related persons)<\/li>\n<li>Refund-based exemption : Refund &gt; INR 1 lakh in previous FY on account of Exports (with\/without payment of tax), Inverted duty structure<\/li>\n<li>Government Entities : <span style=\"font-size: 16px;\">Departments,\u00a0<\/span><span style=\"font-size: 16px;\">PSUs,\u00a0<\/span><span style=\"font-size: 16px;\">Local authorities,\u00a0<\/span><span style=\"font-size: 16px;\">Statutory bodies<\/span><\/li>\n<li>Cash payment already \u2265 1% : If 1% tax has already been paid in cash cumulatively in the current month \u2192 Rule satisfied.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"How_Compliance_Is_Monitored_by_GST_Dept\"><\/span><span style=\"color: #000080;\"><strong>How Compliance Is Monitored by GST Dept.\u00a0<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div>\n<ul>\n<li>Tax authorities track taxpayers using GSTR\u20111 &amp; GSTR\u20113B, E\u2011way bill data, and system-based red flags. Non-compliance may result in <em>Goods and Services Tax <\/em>Notices, Input Tax Credit blocking, &amp; suspension of Goods and Services Tax Identification Number\u00a0in extreme cases.\u00a0 Maintaining documentation proving exemption eligibility is crucial.<\/li>\n<li>Practical Best Practices for compliance include tracking monthly turnover to check the threshold. Maintain exemption documentation, Update accounting software to compute restricted Input Tax Credit, Plan monthly working capital, review status of income tax filings of key persons,\u00a0 and also Check refund history for exemption eligibility<\/li>\n<\/ul>\n<\/div>\n<h2><span class=\"ez-toc-section\" id=\"Practical_Points_related_to_Rule_86B_under_Goods_and_Services_Tax\"><\/span><span style=\"color: #000080;\"><strong>Practical Points related to <\/strong><strong>Rule 86B under <em>Goods and Services Tax<\/em><\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Applied monthly, not yearly; zero\u2011rated supplies are excluded from the INR 50 lakh threshold; Input Tax Credit auto\u2011blocking may occur in non\u2011compliance cases, and It is procedural, not penal, but non\u2011compliance triggers notices. We can understand Rule 86B under <em>Central Goods and Services Tax (CGST) Rules, 2017<\/em>\u00a0via a simple example.<\/p>\n<ul>\n<li>Output GST: INR 10,00,000<\/li>\n<li>Maximum ITC allowed: INR 9,90,000<\/li>\n<li>Minimum cash payment (1%): INR 10,000<\/li>\n<\/ul>\n<p>Even with full Input Tax Credit of INR 10 lakh \u2192 INR 10,000 must be paid via cash ledger.<\/p>\n<p><span style=\"color: #000080;\"><strong>Due to <em>Central Goods and Services Tax (CGST) Rules, 2017 <\/em>Rule 86B\u2014Cash Flow Impact on Businesses :<\/strong> <\/span>Even genuine taxpayers may feel the impact of increased working capital requirements, the need for advance cash planning, possible strain on cash-strapped businesses, &amp; the need to integrate 1% cash rule into budgeting<\/p>\n<h2><span class=\"ez-toc-section\" id=\"In_Summary_Judicial_Interpretation\"><\/span><span style=\"color: #000080;\"><strong>In Summary: Judicial Interpretation<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Courts have generally upheld Rule 86B as a reasonable &amp; non-arbitrary restriction, a valid anti-evasion measure, and acceptable if exemptions are properly applied. <em>Central Goods and Services Tax (CGST) Rules, 2017 <\/em>Rule 86B enforces a <em>minimum cash outflow<\/em> to discourage fake Input Tax Credit claims while safeguarding genuine taxpayers through multiple exemption pathways. <em>Central Goods and Services Tax (CGST) Rules, 2017 <\/em>Rule 86B is a targeted anti-evasion measure aimed at blocking misuse of Input Tax Credit. While it increases cash flow obligations, it affects only high-turnover cases and includes multiple safeguards to protect genuine taxpayers. Understanding its provisions and tracking exemptions ensures smooth and compliant <em>Goods and Services Tax <\/em>operations.\u00a0 Consolidated Exemption Table<\/p>\n<div>\n<div class=\"___i31lg00 f10pi13n f14t3ns0 f1nbblvp fat0sn4 f1ov4xf1 fekwl8i f1lmfglv f1oz7aqm f1abmfm4 f1w619qj f16h0jq8\">\n<table class=\"___1hm93bs f1ddd56o f16vktn6 f1enuhaj fdclmfp f1ev3kgc ftgm304 f1uinfot fibjyge fvueend f9yszdx f1fu4s3n f3l3pb3 f1s2k7dp f8fmt76 fjvbh62 fysh76l fic4ptz f1yenhzu f1yn6nvh f14tj6oe f1jq587y f1el8yx3 f1pymoxg f1ofu761 fe6itr f7coize f1794535 f70r78m f4zgifc fk1v6el f16pyhcb fo436u6 fzy4j18 fc43013 f1hmrcvb fc4t9fq fgp09rh fjnyn6r\" style=\"height: 192px;\" width=\"1072\">\n<tbody>\n<tr>\n<th><span style=\"color: #000080;\">Exemption Category<\/span><\/th>\n<th><span style=\"color: #000080;\">Requirement<\/span><\/th>\n<\/tr>\n<tr>\n<th scope=\"row\">Income Tax Criteria<\/th>\n<td>Income tax paid &gt; INR 1 lakh in each of last two FYs<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">New Registrations<\/th>\n<td><em>Goods and Services Tax<\/em>\u00a0registration &lt; 1 year<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Cash Payment<\/th>\n<td>Output tax already paid in cash &gt; 1% cumulatively in FY<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Government Bodies<\/th>\n<td>Dept., PSUs, Local Authorities<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Export Refunds<\/th>\n<td>Refund &gt; INR 1 lakh due to exports or inverted duty<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n<div>\n<ul>\n<li><span style=\"font-size: 16px;\">The objective is <\/span>not to burden genuine businesses but<span style=\"font-size: 16px;\">\u00a0to tighten compliance among high-risk taxpayers. <\/span><span style=\"font-size: 16px;\">Key goals r<\/span><span style=\"font-size: 16px;\">educe fake invoicing chains, <\/span><span style=\"font-size: 16px;\">ensure minimal genuine tax flow every month, <\/span><span style=\"font-size: 16px;\">discourage shell companies with zero cash trail, &amp; <\/span><span style=\"font-size: 16px;\">improve credibility of reported turnover. <\/span><span style=\"font-size: 16px;\">Rule 86B impacts <\/span>large taxpayers<span style=\"font-size: 16px;\"> only, not MSMEs.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions_on_Rule_86B_under_GST\"><\/span><span style=\"color: #000080;\"><strong>Frequently Asked Questions on\u00a0<\/strong><strong>Rule 86B under GST<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"Q1_Is_Rule_86B_applicable_to_all_GST-registered_businesses\"><\/span><span style=\"color: #000080;\"><strong>Q.1: <\/strong><strong>Is Rule 86B applicable to all GST-registered businesses?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Ans. No. Only if taxable turnover exceeds INR 50 lakh in a month and no exemption applies. <em>Central Goods and Services Tax (CGST) Rules, 2017 <\/em>Rule 86B restricts the utilization of Input Tax Credit for the payment of output tax. Even if adequate Input Tax Credit is available in the Electronic Credit Ledger, the rule mandates that a minimum portion of <em>Goods and Services Tax<\/em>\u00a0liability must be paid in cash.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Q2_Does_the_INR_50_lakh_threshold_include_exempt_or_zero-rated_supplies\"><\/span><span style=\"color: #000080;\"><strong>Q.2:\u00a0<\/strong><strong>Does the INR 50 lakh threshold include exempt or zero-rated supplies?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Ans. No. It includes only taxable supplies.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Q3_What_happens_if_I_dont_comply_with_Rule_86B\"><\/span><span style=\"color: #000080;\"><strong>Q.3: <\/strong><strong>What happens if I don\u2019t comply with Rule 86B?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Ans. Non-compliance may lead to Return mismatch, Invalidation, Penalties for delayed tax payment<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Q4_Can_unused_input_tax_credit_be_refunded_due_to_Rule_86B\"><\/span><span style=\"color: #000080;\"><strong>Q.4: Can unused input tax credit be refunded due to Rule 86B?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Ans.\u00a0 No. Input Tax Credit remains in the Electronic Credit Ledger for future use. Rule 86B does <em>not<\/em> generate refund.<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Overview about Rule 86B under GST \u2013 Restriction on ITC Utilisation Rule 86B of the Central Goods and Services Tax (CGST) Rules, 2017, restricts the use of Input Tax Credit for payment of output Goods and Services Tax \u00a0in certain situations. This rule was implemented to curb fake invoicing &amp; improve tax discipline. Even if &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[172],"tags":[10407],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/30971"}],"collection":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/comments?post=30971"}],"version-history":[{"count":2,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/30971\/revisions"}],"predecessor-version":[{"id":30974,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/30971\/revisions\/30974"}],"wp:attachment":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/media?parent=30971"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/categories?post=30971"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/tags?post=30971"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}