Have you ever opened the GST portal and proceeded to submit your return, only to notice that your Input Tax credit could not be fully claimed? You had the credit. You earned it. And still the system just said no.
Confusing, right?
And in case this has happened to you, it is highly likely that CGST Rule 86B applies to you. The CGST Rules Rule 86B was introduced to reduce fake invoicing and abuse of the Input Tax credit. That sounds fair. However, for honest businesses, particularly high-turnover and low-margin ones, this rule can be a sudden form of roadblock.
In this blog, we will discuss what exactly Rule 86B is, how it comes into effect, its applicability and its exemptions.
What is Rule 86B under GST?
In essence, the CGST rule 86B imposes a limit on the amount of the Input Tax Credit that you can use to settle your GST liability.
According to this provision, when your taxable turnover in a given month is over ₹50 lakh, you are not allowed to claim ITC to pay an amount greater than 99 per cent of your output tax. A minimum of 1 per cent of your GST liability should be paid in cash.
When Did Rule 86B Come Into Effect?
It came into force in January 2021 via Notification 94/2020. Fast forward to 2026, no big changes yet.
A Practical Example to Understand Rule 86B
Suppose you run a wholesale electronics business in Bangalore.
In January 2026, your taxable turnover is ₹80 lakh.
Your GST liability is ₹14.4 lakh
You have ITC of ₹14 lakh available
Before Rule 86B, you would have paid almost the entire tax using ITC.
But now?
Under GST Rule 86b, you must pay at least 1 per cent of ₹14.4 lakh in cash.
That is ₹14,400.
Even if you have ITC of ₹50 lakh sitting unused, you still need to pay that cash amount.
That’s the whole idea behind GST Rule 86B.
Who Does GST Rule 86B Apply To?
Now comes the big question.
Does this rule apply to you?
Rule 86B is only applicable in cases where the following conditions are satisfied.
- Your monthly turnover has been over ₹50 lakh, taxable.
- You are not under any exemption category.
- You are liable for GST liability discharge by way of ITC.
In case your turnover in taxable monthly income is ₹50 lakh or less, this rule is not applicable. Simple.
But if you exceed that limit even once, the rule comes into effect that month.
The monthly limit is not an annual one.
This is an overlooked fact in many businesses.
Who is Exempt from Rule 86B?
The government realised that a blanket ban would benefit those who are real taxpayers. A number of exceptions were allowed, which are as follows:
This means that you do not need to comply with GST rule 86b in case one of the following conditions is met.
Condition 1:
Rule 86B will not be applicable in cases where one of the following paid more than ₹1 lakh in income tax in both the preceding two financial years.
- Proprietor
- Partner
- Managing Director
- Whole time Director
- Karta of HUF
Established businesses have heavily taken advantage of such an exemption.
Condition 2:
Provided that you have refunded an amount of over ₹1 lakh in the last financial year due to:
- Export with payment of tax
- Inverted duty structure
Then Rule 86B does not apply.
Condition 3:
You already pay an amount of more than 1 per cent in cash.
When you are already paying above 1 per cent of your GST liability in cash, then there is no restriction.
Condition 4:
Public service departments and PSU.
Rule 86B is not for government departments, local governments and government undertakings.
The Enforcement of Rule 86B in the GST Portal
In case you need to use ITC to offset tax liability beyond the stipulated threshold, the system simply blocks it.
An error message will appear saying that ITC utilisation is beyond the given limit in Rule 86B.
No warning. No explanation.
Conclusion
We hope that after reading this blog, you understand what CGST’s Rule 86B is and what the exemptions are. If you are facing difficulties in tracking turnover, we recommend that you utilize the capabilities of Munim Accounting and Billing software. It not only tracks your sales but also helps you in generating invoices, tracks inventory and enables you to do bank reconciliation in an easier way.
Frequently Asked Questions on GST Rule 86B
1. Who is exempt from 1% cash payment in GST?
The rule does not apply to you, in the event you are a proprietor, partner, managing director or karta who has incurred an amount exceeding ₹1 lakh of income tax each of the past two financial years. You are also exempted from rule 86B, provided that your business has obtained a GST refund of over ₹1 lakh in the last year because of export or inverted duty structure.
2. What if rule 86B is not followed?
Failure to adhere to GST rule 86B could block you from filing your returns or limit the utilisation of ITC by the GST portal itself.
3. What is the Rule 86B applicability formula?
Rule 86B Applicability Formula
If,
Monthly Taxable Turnover > ₹50,00,000
Outcome: GST Rule 86B applies for that month
If,
Monthly Taxable Turnover ≤ ₹50,00,000
Outcome: GST Rule 86B does not apply
4. What is the rule for 1% GST in cash?
The rule is called 86B. Under this rule, you need to pay at least 1% of your GST liabilities in cash if your monthly turnover is more than 50 lakhs. You may use ITC for the remaining 99%.
5. What is the turnover limit for 86B?
The turnover limit for CGST’s rule 86B is 50 lakhs on a monthly basis, not yearly.
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