CGST Rule 86B is a recent provision that imposes a restriction on the use of the amount available in the electronic credit ledger of a taxpayer. The main objective of this provision is to prevent the misuse of input tax credit (ITC) and to ensure that the same is used for payment of tax liabilities only.
1. Limitation on ITC utilization: The rule states that a taxpayer can use ITC available in the electronic credit ledger for payment of output tax liability up to 99% of the total tax liability for the tax period. In other words, a taxpayer cannot use more than 99% of the available ITC for payment of tax liability.
2. Exceptions to the limitation: The limitation on ITC utilization does not apply if the taxpayer has paid more than Rs. 1 lakh as income tax or if the taxpayer has received a refund of more than Rs. 1 lakh in the preceding financial year on account of unutilized ITC.
3. Conditions for availing the exception: To avail of the exception, the taxpayer must have filed the returns for the preceding two financial years and must not have any pending proceeding or any amount of tax, interest, or penalty that has not been paid.
4. Applicability of the rule: The rule is applicable to all registered taxpayers, except for those who are classified as a government department, a public sector undertaking, a local authority, or a statutory body.
It's important to note that CGST Rule 86B is aimed at curbing the misuse of ITC and to ensure that the same is used for payment of tax liabilities only. The rule provides an exception for taxpayers who have a good compliance history and have paid a significant amount of income tax or have received a significant amount of refund of unutilized ITC in the preceding financial year. However, taxpayers who do not meet the conditions for availing of the exception will need to be mindful of the limitation on ITC utilization while paying their tax liabilities.
The purpose of CGST Rule 86B is to prevent the fraudulent practice of claiming excessive input tax credit (ITC) without actual receipt of goods or services, which could lead to tax evasion. The rule places a restriction on the use of the amount available in the electronic credit ledger to discharge the liability for output tax. This is to ensure that taxpayers have genuine and legitimate transactions for claiming ITC and to prevent the misuse of the ITC system. By doing so, the government aims to curb tax evasion and ensure compliance with the tax laws.
The threshold limit for the applicability of CGST Rule 86B is Rs. 1 lakh. If a registered person has an amount of more than Rs. 1 lakh in their electronic credit ledger, they will be affected by this rule. In such cases, they will not be able to use the amount available in the electronic credit ledger to discharge the liability for output tax if their liability towards output tax is less than 1% of the total output tax liability. They will need to pay their output tax liability in cash, which could impact their working capital requirements. It is important for taxpayers to keep track of their electronic credit ledger and ensure that they comply with the provisions of the CGST Rule 86B to avoid any penalties or legal consequences.
CGST Rule 86B impacts taxpayers by restricting their ability to use the amount available in their electronic credit ledger to discharge their output tax liability. Taxpayers who are affected by this rule will need to make the payment of their output tax liability in cash, which could affect their working capital requirements.
For example, if a registered person has an electronic credit ledger balance of Rs. 2 lakh and their output tax liability for the current period is only Rs. 10,000, they will not be able to use the entire amount available in their electronic credit ledger to pay off their output tax liability. They will have to pay Rs. 10,000 in cash and can only use the balance of Rs. 1,90,000 for payment of tax liabilities in future periods.
This rule is aimed at preventing the misuse of input tax credit and promoting genuine transactions. However, it could have an impact on the cash flow of businesses, especially those with high input tax credit balances. To comply with this rule, taxpayers will need to carefully manage their input tax credit and cash balances to ensure that they have sufficient funds to pay their output tax liability in cash.
A: CGST Rule 86B is a provision introduced in the Central Goods and Services Tax (CGST) Rules, 2017 that places a restriction on the use of the amount available in the electronic credit ledger to discharge the liability for output tax.
A: The purpose of CGST Rule 86B is to curb the fraudulent practice of claiming excessive input tax credit (ITC) without actual receipt of goods or services, which could lead to tax evasion.
A: CGST Rule 86B affects registered persons who have an amount of more than Rs. 1 lakh in their electronic credit ledger, and their liability towards output tax is less than 1% of the total output tax liability. Such persons are restricted from using the amount available in the electronic credit ledger to discharge the liability for output tax.
A: The threshold limit for the applicability of CGST Rule 86B is Rs. 1 lakh. If a registered person has an amount of more than Rs. 1 lakh in their electronic credit ledger, they will be affected by this rule.
A: CGST Rule 86B impacts taxpayers by restricting their ability to use the amount available in their electronic credit ledger to discharge their output tax liability. Taxpayers who are affected by this rule will need to make the payment of their output tax liability in cash, which could affect their working capital requirements.
A: Yes, there are some exceptions to the application of CGST Rule 86B. The rule does not apply to a registered person who has paid more than Rs. 1 lakh as income tax under the Income Tax Act, 1961 in each of the last two financial years, or who has received a refund of more than Rs. 1 lakh in the preceding financial year on account of unutilized input tax credit.
A: CGST Rule 86B came into effect on 1st January 2021.
Pradhan Mantri Adarsh Gram Yojana (PMAGY)
Pharma Distributors In Ahmedabad [Top 10 Stores]
Latest GST Ready Reckoner – 2022
