CBIC Rule 86B: Limits on ITC Utilization
CBIC Rule 86B: Limits on ITC Utilization
Mar 21, 2024
15 Mins
The Central Board of Indirect Taxes and Customs (CBIC) has introduced a new rule, 86B, via notification number 94/2020 dated December 22, 2020. This rule, which became effective on January 1, 2021, places restrictions on the utilization of Input Tax Credit (ITC) in the electronic credit ledger under the Goods and Services Tax (GST) system.
Previously, ITC could be fully utilized for discharging output tax liability. However, Rule 86B limits the use of ITC balance for this purpose. The rule applies to registered individuals who have a taxable value of supply exceeding Rs. 50 lakh in a month (excluding exempt and zero-rated supplies). The limit must be checked every month before filing returns.
Under this rule, registered persons cannot use ITC in excess of 99% of their output tax liability. In other words, more than 99% of the output tax liability cannot be settled using ITC.
There are exceptions to this rule. Individuals who have paid more than Rs. 1 lakh as Income Tax under the Income Tax Act, 1961, and certain authorized individuals (such as partners or directors) are exempt. Additionally, those who have received a refund of over Rs. 1 lakh in the previous financial year due to export or inverted tax structure, or have discharged their output tax liability by electronic cash ledger for an amount exceeding 1% of the total liability up to the current month in the current financial year, are also exempt.
The rule primarily targets large taxpayers and aims to combat fake invoicing and fraudulent use of input tax credit. The government's objective is to prevent the misuse of ITC and curb tax evasion.
It is important to note that 1% is calculated based on the tax liability and turnover in a given month.
While this new rule may inconvenience genuine taxpayers, it serves the purpose of ensuring compliance and reducing fraudulent activities.
The Central Board of Indirect Taxes and Customs (CBIC) has introduced a new rule, 86B, via notification number 94/2020 dated December 22, 2020. This rule, which became effective on January 1, 2021, places restrictions on the utilization of Input Tax Credit (ITC) in the electronic credit ledger under the Goods and Services Tax (GST) system.
Previously, ITC could be fully utilized for discharging output tax liability. However, Rule 86B limits the use of ITC balance for this purpose. The rule applies to registered individuals who have a taxable value of supply exceeding Rs. 50 lakh in a month (excluding exempt and zero-rated supplies). The limit must be checked every month before filing returns.
Under this rule, registered persons cannot use ITC in excess of 99% of their output tax liability. In other words, more than 99% of the output tax liability cannot be settled using ITC.
There are exceptions to this rule. Individuals who have paid more than Rs. 1 lakh as Income Tax under the Income Tax Act, 1961, and certain authorized individuals (such as partners or directors) are exempt. Additionally, those who have received a refund of over Rs. 1 lakh in the previous financial year due to export or inverted tax structure, or have discharged their output tax liability by electronic cash ledger for an amount exceeding 1% of the total liability up to the current month in the current financial year, are also exempt.
The rule primarily targets large taxpayers and aims to combat fake invoicing and fraudulent use of input tax credit. The government's objective is to prevent the misuse of ITC and curb tax evasion.
It is important to note that 1% is calculated based on the tax liability and turnover in a given month.
While this new rule may inconvenience genuine taxpayers, it serves the purpose of ensuring compliance and reducing fraudulent activities.
Author
Pluto Team
Share with your friends
Help you friends in learning more about personal finance by share this blog.
Help you friends in learning
more about personal finance
by share this blog.
Help you friends in learning more about personal
finance by share this blog.
Silimar Blogs
West Bengal Caste Certificate
West Bengal Caste Certificate
June 22, 2024
Star Health Insurance Customer Care
Star Health Insurance Customer Care
June 22, 2024
SBI Savings Account
SBI Savings Account
June 22, 2024
How to Check FASTag Balance
How to Check FASTag Balance
June 22, 2024
Bhoomi Online - Karnataka's Land Records & RTC
Bhoomi Online - Karnataka's Land Records & RTC
June 22, 2024
Current Petrol Price in Bangalore
Current Petrol Price in Bangalore
June 22, 2024
View More
Download App
Explore More
Managing assets totalling over 1 crore+