Condition and Restriction on use of amount in Electronic Credit Ledger
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Condition and Restriction on use of amount in Electronic Credit Ledger
To understand the Conditions and Restrictions on the use of amounts in the Electronic credit ledger, we have to go through the Rules under the GST laws. Rule 86A talks about the Conditions of use of amount available in the Electronic Credit Ledger and Rule 86B talks about the Restriction on use of amount available in the electronic credit ledger. Let’s dig down and understand both these rules in a better manner.
RULE 86A: CONDITIONS OF USE OF AMOUNT AVAILABLE IN ELECTRONIC CREDIT LEDGER
- The commissioner or an authorized officer, not below the rank of an assistant commissioner, having reasons to believe that ITC available in the electronic credit ledger is ineligible or fraudulently availed is as much as:
- The ITC has been availed based on a tax invoice debit note or any other document:
a. Issued by a registered person who has been subsequently found non-existent or not to be conducting any business from the registered place.
b. Without receipt of any goods or service or both
- The ITC has been availed based on a tax invoice debit note or any other document in respect of any supply on which the tax charged has not been paid to the government.
- The registered person availing such ITC has been found nonexistent or not conducting any business from the registered place or any other place
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The registered person availing ITC does not have any tax invoice debt note or any other prescribed document.
May, for any reason to be recorded in writing, not allow debit of an amount equivalent to such ITC for discharge of any liability or claim of any unutilized amount refund.
2. The commissioner or authorized officer as stated above, upon being satisfied that conditions for debit disallowance of electronic credit ledger as above, no longer exist, allows such debit.
3. Such restrictions shall have no effect after the export of a period of a year from the date of imposing such restrictions.
RULE 86B: RESTRICTION ON USE IF AMOUNT AVAILABLE IN ELECTRONIC CREDIT LEDGER
This rule restricts the taxpayer from using an electronic credit ledger for making the payment of output tax liability. According to this rule, taxpayer paying an amount of more than Rs 1 lakh in their credit ledger have to mandatorily use a % of their available credit for the payment of output tax payable.
- Applicability of Rule 86B
- The rule applied to registered persons having a turnover of goods worth more than 50 Lacs in a month
- The taxable turnover should be exclusive of any zero-rated and exempt supply
- The person should check the value of their goods each month while filing their returns of GST
- The taxable turnover should be derived as = Total turnover of the person - (Zero-rated + exempted turnover)
2. Restrictions imposed by Rule 86B
- It limits the use of ITC in the credit ledger for discharging the output tax liability
- If the registered person has a turnover of over 50 lacs in a month, they can pay only 99% of their output tax liability with their ITC
- The remaining 1% of the liability is to be paid from the cash ledger only
3. Exceptions to the Rule 86B
a. Any person mentioned in the below list who has paid an income tax greater than 1 Lakh rupees in a year is exempt from this rule:
- A registered person
- Karta of the HUF
- Proprietor
- MD of the business
- Whole Time Director
- Partners of the firm
b. If a registered person has received a refund of Rs 1 lakh or more in the last FY, this refund of unused ITC received towards export under the LOU or because of an inverted duty structure, will not be accounted for under Rule 86B.
c. When a registered person has paid his liability using the cash ledger of an amount that is more than 1% collectively of the entire liability payable on the person in the given month in a given FY
d. The person is exempt from any GST if they hold offices of local authority, PSU, Government department, or statutory authority.
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Frequently Asked Questions
What is Rule 86A in GST, and when can the authorities disallow the use of an Electronic Credit Ledger?
Rule 86A empowers authorities to disallow the use of an Electronic Credit Ledger if there are suspicions of ineligible or fraudulent Input Tax Credit (ITC). This includes cases where the supplier is non-existent, not conducting business, or if tax hasn't been paid to the government.
Can the restrictions imposed under Rule 86A be lifted?
Yes, if the commissioner or authorized officer is satisfied that the conditions for disallowance of electronic credit ledger no longer exist, they can allow the debit.
How long do the restrictions imposed under Rule 86A last?
The restrictions are effective for a maximum period of one year from the date of imposition.
What is Rule 86B, and who does it apply to?
Rule 86B restricts taxpayers from using Electronic Credit Ledger for payment of output tax liability. It applies to registered persons with a monthly turnover of goods exceeding 50 lakhs, excluding zero-rated and exempt supplies.
How does Rule 86B limit the use of Input Tax Credit (ITC)?
If the monthly turnover exceeds 50 lakhs, a registered person can use only 99% of their ITC to pay the output tax liability. The remaining 1% must be paid in cash.
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Passionate about Finance, Audit, and Content Creation, I am an aspiring CA and a grad from the SGGSCC DU'21, currently working with EY India as an Audit and Finance Trainee. Read more...