Q1) what is the purpose of inserting the rule 86B under GST?
Ans) As per section 16 of the GST Act 2017 (Eligibility and Conditions for taking ITC) one of the important condition for availing ITC is that the recipient need to possess any tax paying document issued by a supplier who is registered under this act.
But there is possibility that some fraudsters may raise duplicate or fake invoices and show that as a proof to claim ITC and evade payment of tax.
Many measures are initiated by CBDT in order to curb this revenue leakage and one among them is the introduction of Rule86B
Q2) when does Rule 86B is applicable from?
Ans ) CBDT via notification no. 94/2020– Central tax dated 22 nd December 2020, of CGST rules 2017 introduced rule 86B.
Q3) To whom Rule 86B applicable?
Ans) Rule 86B is applicable to the registered person having value of taxable supply (other than exempt supply and zero rated supply) in a month exceeds 50 lakhs
NOTE: So in order to check the applicability of this rule we have to check the turnover for every individual month
Sample Assessment:
- Mr Rajesh has made taxable supplies of 80 lakhs in March 2021 which includes exempt supplies of 20 lakhs and exports of 20 lakhs, whether he is covered under the preview of rule 86B?
Ans) NO, because to check the eligibility we need to consider only taxable supplies other than exempted and zero rated supplies and it comes to 40 lakhs which is less than 50 lakhs .
- Miss Susmitha has made taxable supplies of 80 lakhs in March 2019 which includes exports of 10 lakhs, whether he is covered under the preview of rule 86B?
Ans) NO, because though the taxable supplies are exceeding 50 lakhs but the said rule is applicable only for the GSTR-3B for the month of December 2020.
Q4) what is the nature of restriction imposed as per Rule 86B?
Ans) The registered person to whom above rule is applicable cannot utilize ITC in excess of 99% of the output tax liability. Simply, minimum 1% of output tax liability is to be discharged using electronic cash ledger.
Sample Assessment:
The total value of inter- state supply of Sriram & co for the month of March 2022 is 100 lakhs. Said supply is taxable @ 18% IGST. Thus, total output tax liability of Sriram& co is Rs. 18 lakhs. Amount available in electronic credit ledger is Rs. 20 lakhs (IGST)
In terms of restriction imposed by rule 86B , Sriram & co can discharge 99% of its output tax liability , i.e ., Rs 17,82,000( 99% (18,00,000)) from the amount available in e- credit ledger . However, it has to mandatorily discharge the balance 1% of the output tax liability i.e., Rs 18,000 (1%of 18, 00,000) through e-cash ledger only.
Q5) Are there any Exceptions to Rule 86B ?
Ans) Yes, there are exceptions and assesses who are coming under the following exceptions no need to abide Rule 86B
Exception 1 )
Any person who had deposited sum of more than Rs. 1 lakh as income tax under the income tax act,1961 in each of last 2 financial years for which the time limit to file return u/s 139(1) has expired
Exception 2)
If any registered person received a refund of unutilized ITC of value more than one lakh in the preceding financial year by either of the following modes:
Refund by way of Inverted duty structure
Zero rated supply without payment of tax
Exception 3)
If the registered person has paid more than 1% of total output tax liability up to the said month by way of e- cash ledger in the current financial year
Example:
Mr Prasanth has a cumulative output tax liability for the FY 2021-22 till June 2021 is Rs 60, 00, 000 and out of that he paid Rs 5,50,000 by way of cash which is in excess of Rs 60,000 (1% Rs 60,00,000) so for the month of July 2021 Rule 86B is not applicable
Exception 4)
If the registered person under examine is any of the following:
a) Government Department
(b) Public Sector Undertaking
(c) Local and Statutory Authority
Q 6) what is the penalty for overriding Rule 86B
Ans ) he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.