The GST portal has rolled out a significant update with the introduction of Rule 86B compliance, aimed at strengthening tax adherence and promoting responsible tax management.
Under this new rule, a registered person whose value of taxable supply, other than
exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees must
adhere to specific guidelines when discharging their output tax liability.
As per Rule 86B, registered businesses can utilize the Electronic Credit Ledger
(ECL) to pay up to 99% of their total output tax liability. This provision
empowers businesses to make the most of their Input Tax Credit (ITC) benefits,
thereby encouraging proper utilization of tax credits to offset tax dues.
However, the remaining 1% of the tax liability must be paid through cash
ledgers. This minor cash payment ensures that businesses maintain a level of
cash contribution towards their tax obligations, fostering a balanced and
disciplined tax approach.
It's important to note that exceptions to Rule 86B do exist.
The compliance rule does not apply in certain situations, and registered
persons are exempted from this requirement under the following scenarios:
1) Cases where the registered person* has paid more than Rs. 1 lakh as income
tax in each of the last two financial years**.
*
Registered person includes:-
a) The registered person,
b) Proprietor, karta or Managing Director of the registered person,
c) Any of the partners or whole time directors or any other person as the case
may be.
**
Last Two financial years to be taken for which the time limit to file return of
income under subsection (1) of section 139 of the said Act has expired.
2) Businesses classified as government departments, local authorities, or
statutory bodies.
3) Registered persons who have received a refund exceeding Rs. 1 lakh in the
preceding financial year on account of accumulated ITC and inverted tax
structure.
4) Where GST Paid in cash cumulatively for more than 1% of Total Output
Liability till latest Tax Period:-
Example:
In Financial Year 2022-23, upto the month of June 2023, a person has paid GST
in cash of Rs 3 Lakh out of Total Output Liability of Rs 1 Crore (i.e. 3% till
June 2023). During the month of July 2023, GST output Liability is Rs 15 Lakh.
Now his total payment in cash is Rs 3 Lakh out of Rs 115 Lakh liability {i.e.
(3L/115L*100)= 2.60%} which is still more than 1% of Total output liability.
Here, the person can settle all his liability of Rs 15 Lakh of July 2023 with
Input Tax Credits.
These exceptions have been incorporated to ensure that genuine taxpayers and
entities with substantial tax contributions are not unduly burdened by the
rule. By exempting specific categories, the government aims to strike a balance
between encouraging tax compliance and acknowledging the unique circumstances
of certain businesses.
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