Interpretation of Rule 86B - Whether

[vaibhav agrawal]

Dear Experts,

I seek your views on the interpretation of clause (a) of the first proviso to Rule 86B of the CGST Rules, 2017.

Clause (a) provides that Rule 86B shall not apply where the registered person or the specified persons have paid income tax exceeding Rs. 1 lakh in each of the "last two financial years for which the time limit to file return of income under section 139(1) of the Income-tax Act has expired."

The issue is whether the above expression has to be interpreted:

1. Dynamically with reference to each tax period (month) in which Rule 86B is to be applied; or
2. Once at the beginning of the financial year (say, in April), and the same two financial years continue to apply throughout that GST financial year.

For example, while examining the applicability of Rule 86B during FY 2026-27, should the exception under clause (a) be tested separately for each month? This question arises because the due date under section 139(1) for filing the income-tax return for FY 2025-26 may expire during FY 2026-27. Consequently, from that date onwards, the expression "last two financial years for which the time limit... has expired" would appear to refer to a different set of financial years.

In other words, should the relevant two financial years change during the course of the GST financial year upon expiry of the income-tax return due date, or should they remain fixed for the entire financial year based on the position prevailing in April?

[Sadanand Bulbule]

The exception under Rule 86B applies dynamically to each tax period (month) based on the exact date of filing. Because the law uses the present perfect tense ("has expired"), the relevant look-back block of the "last two financial years" shifts automatically the moment a new Income Tax return due date passes mid-year, rather than remaining fixed from April.

[KASTURI SETHI]

Legal meaning of "Financial Year" cannot be disturbed.

[Sadanand Bulbule]

Sir's reply is icing on the cake.

[KASTURI SETHI]

Thanks a lot, Sir.

[Sadanand Bulbule]

Sir's reply is icing on the cake.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

I agree with the view of Sri Kasthuri Sethi Ji.

Two financial years continue to apply throughout that GST financial year.

[KASTURI SETHI]

Thanks a lot, Sir.

AI Summary

Rule 86B interpretation turns on whether the last two financial years are fixed or shift dynamically through the GST year.
Interpretation of the first proviso to Rule 86B of the CGST Rules, 2017 was discussed in relation to the income-tax return filing condition requiring payment of income tax exceeding the prescribed threshold in each of the last two financial years for which the time limit under section 139(1) has expired. The issue was whether this exception should be applied dynamically for each GST tax period, with the relevant two financial years changing when a later due date expires during the year, or whether the two financial years should remain fixed throughout the GST financial year.