CGST is the final category of GST. It’s a tax levied on intrastate supplies of goods and services by the central government, and it is governed by the CGST Act. Since SGST falls under intrastate supply, it is levied in the same way, but it is now regulated by the state government. Rule 86B of CGST Rules introduces restrictions on the utilization of the electronic credit ledger balance for tax liability payments.
For the Central Goods and Services Tax to be introduced, some taxes must be subsumed. They include central sales tax (CST), additional customs duty—countervailing duty (CAD), central excise duty, service tax, special additional duty of customs (SAD), and surcharges and cesses. Section 7(1) of the CGST Act) All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Rule 86B of CGST Rules
GST Rule 86B introduces restrictions on the utilization of the electronic credit ledger balance for tax liability payments. Taxpayers with a turnover exceeding INR 50 lakhs (excluding zero-rated and exempt supplies) in a month face limitations on credit usage.
Restriction on Use of Balance Available in Input Tax Credit (ITC)
Ledger The Registered Person can use the balance available in Input Credit Ledger up to 99% of such tax liability which means 1% liability of such tax required to be paid through cash ledger only. However, balance available in the credit ledger is lesser than the liability under the same ledger then the taxpayer can use 100% of the Input tax credit available in the respective ledger.
86B. Restrictions on use of amount available in electronic credit ledger
Notwithstanding anything contained in these rules, the registered person shall not use the amount available in the electronic credit ledger to discharge his liability towards output tax above ninety-nine percent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees.
a) the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or
(b) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (i) of the first proviso of sub-section (3) of section 54; or
(c) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (ii) of the first proviso of sub-section (3) of section 54; or
(d) the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount that is more than 1% of the total output tax liability; or
(e) the registered person is – (i) a Government Department; (ii) a Public Sector Undertaking; or (iii) a local authority
Conclusion
GST Rule 86B has significant implications for registered taxpayers with a turnover exceeding INR 50 lakhs. Understanding its provisions, restrictions, and exemptions is crucial to remain compliant. The article clarifies the applicability of the rule through examples, providing taxpayers with the necessary knowledge to navigate their input tax credit utilization effectively.
