1 Replies
Money Money
(413 Points)
Replied 27 July 2024
Certainly! Rule 86B under the Goods and Services Tax (GST) regime imposes restrictions on the utilization of Input Tax Credit (ITC) available in the electronic credit ledger for discharging output tax liability. Here are the key points:
Applicability:
Registered persons whose taxable value of supply (excluding exempt and zero-rated supplies) in a month exceeds Rs. 50 lakh are subject to this rule1.
The rule aims to prevent misuse of ITC and curb tax evasion.
Restriction:
Such registered persons can utilize ITC to discharge their output tax liability only up to 99% of the total liability.
The remaining 1% of the output tax liability must be paid in cash using the e-cash ledger2.
Example:
Suppose a taxpayer’s taxable turnover during a month is Rs. 1,00,00,000, and the applicable tax rate is 18%.
Input tax credit after considering other rules (e.g., Rule 36(4)) is Rs. 20,00,000.
Under the pre-amendment scenario, the supplier could pay the full liability of Rs. 18,00,000 using ITC from the e-credit ledger.
However, post-amendment, utilization from the e-credit ledger is restricted to a maximum of 99% of the output tax liability (i.e., Rs. 17,82,000).
The remaining Rs. 18,000 must be paid in cash using the e-cash ledger2.
Remember that this restriction applies specifically to the payment of output tax. Utilizing ITC to discharge Reverse Charge Mechanism (RCM) liability is not allowed at all2
Applicability:
Registered persons whose taxable value of supply (excluding exempt and zero-rated supplies) in a month exceeds Rs. 50 lakh are subject to this rule1.
The rule aims to prevent misuse of ITC and curb tax evasion.
Restriction:
Such registered persons can utilize ITC to discharge their output tax liability only up to 99% of the total liability.
The remaining 1% of the output tax liability must be paid in cash using the e-cash ledger2.
Example:
Suppose a taxpayer’s taxable turnover during a month is Rs. 1,00,00,000, and the applicable tax rate is 18%.
Input tax credit after considering other rules (e.g., Rule 36(4)) is Rs. 20,00,000.
Under the pre-amendment scenario, the supplier could pay the full liability of Rs. 18,00,000 using ITC from the e-credit ledger.
However, post-amendment, utilization from the e-credit ledger is restricted to a maximum of 99% of the output tax liability (i.e., Rs. 17,82,000).
The remaining Rs. 18,000 must be paid in cash using the e-cash ledger2.
Remember that this restriction applies specifically to the payment of output tax. Utilizing ITC to discharge Reverse Charge Mechanism (RCM) liability is not allowed at all2
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