TaxTMI 
TaxTMI 
Rule 86B of CGST Rules, 2017 – Restriction on ITC Utilization
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule 86B of CGST Rules, 2017 – Restriction on ITC Utilization<br>By: - Tushar Malik<br>Goods and Services Tax - GST<br>Dated:- 26-3-2025<br>Introduction The Government introduced Rule 86B in the CGST Rules via Notification No. 94/2020 - Central Tax dated 22nd December 2020, which became effective from 1st January 2021. This rule is an anti-evasion measure aimed at restricting the complete discha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rge of GST liability through the Input Tax Credit (ITC) mechanism, thereby ensuring some cash payment from large taxpayers. Where the value of taxable supply (excluding exempt and zero-rated supplies) of a registered person exceeds Rs.50 lakh in a month, ITC cannot be used to discharge more than 99% of output tax liability. This means, at least 1% of the GST payable must be paid in cash. In Simp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le Terms: ✔ If monthly taxable turnover > Rs.50 lakh (excluding exempt and zero-rated supplies), ✔ Minimum 1% of GST liability must be paid in cash, ✔ The remaining 99% may be paid through ITC. Applicability * Applicable to registered persons under GST whose monthly taxable supply exceeds Rs.50 lakh. * The Rs.50 lakh threshold excludes: * Exempt supplies * Zero-rat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed supplies (exports & supplies to SEZs without payment of tax) Exceptions (When Rule 86B Does Not Apply) Rule 86B will NOT apply under the following circumstances: 1. Income Tax Payment Criteria: * If the registered person (or Proprietor/ Karta/ Managing Director/ Partner/ Whole-time Director) has paid Income Tax exceeding Rs.1 lakh in each of the last two financial years. 2. Refund Criteri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a: * If the taxpayer has received a refund of more than Rs.1 lakh in the previous financial year on account of: * Unutilized ITC from zero-rated supplies without payment of tax (exports or SEZ supplies under LUT), or * Inverted duty structure (rate of tax on inputs higher than outputs). 3. Cash Payment Criteria: * If the taxpayer has already cumulatively paid >1% of output tax liability i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n cash up to the said month in the current financial year. 4. Exempted Entities: * The restriction will not apply to: * Government Departments * Public Sector Undertakings (PSUs) * Local Authorities * Statutory Bodies 5. Commissioner Discretion: * The Commissioner may, upon application, remove the restriction after due verification and with recorded reasons. Objective of Rule 86B ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....* To prevent misuse of ITC through fake invoicing. * To ensure minimum cash flow from large taxpayers. * To curb circular trading and tax evasion. * To strengthen GST compliance and government revenue collection. Example Let's say ABC Pvt. Ltd. has a monthly taxable turnover of Rs.80 lakh in February. * GST @ 18% = Rs.14.4 lakh output liability. * Maximum ITC utilization allowed = Rs.1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4.26 lakh (99%). * Minimum Rs.14,400 (1%) must be paid in cash via Electronic Cash Ledger. Impact on Businesses 1. For Large Taxpayers: * Need to maintain liquidity for minimum cash payments. * Tightens compliance to discourage non-genuine businesses. 2. For Small & Medium Enterprises (SMEs): * Rule 86B does NOT affect businesses with taxable turnover ≤ Rs.50 lakh in a month. * No ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....impact on micro and small enterprises operating below the threshold. CBIC Clarification The CBIC has clarified that: * The 1% cash requirement is monthly, based on monthly turnover. * It applies only to the output tax liability after excluding exempt and zero-rated turnover. Penalties for Non-Compliance * Interest & penalties on excess ITC used. * Suspension or cancellation of GST regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tration. * Prosecution under relevant sections of the CGST Act. Rule 86B is a targeted move by the Government to tighten GST compliance, ensure genuine cash flow, and fight tax evasion. Although it adds a compliance burden on large businesses, it strengthens the GST system's integrity. Always review turnover and ITC usage before filing GSTR-3B, and plan cash flows accordingly to stay compl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iant with Rule 86B.<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....