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Restrictions on Use of Amount Available in Electronic Credit Ledger

A new Rule 86B has been inserted into CGST Rules, 2017 vide Notification No. 94/2020-Central Tax Dated 22nd December 2020. After the introduction of this new rule, the restriction has been imposed on the use of electronic credit ledger. Now, the registered person will be able to use only 99% of the electronic credit ledger balance to discharge his liability towards outward tax. This implies that 1% of liability towards outward tax has to be paid in cash. 

This rule is applicable to that taxpayer whose taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees. This limit is be checked with respect to each month for which the return is being filed. Therefore, in cases wherein turnover of taxable supply would be less than fifty lakh rupees then this restriction would not be applicable. If in the subsequent month, the turnover exceeds 50 Lakh, then restriction would have to be checked.

Provided that Rule 86B would not be applicable if a registered person falls in any of the following criteria: 

The below-mentioned persons have paid more than one lakh rupees as an income tax under the Income-tax Act, 1961(43 of 1961)–

  • The said person or
  • The proprietor or 
  • Karta or 
  • The Managing Director or any of its two partners, Whole Time Directors or
  • Members of Managing Committee of Associations or Board of Trustees, as the case may be

The eligibility check would be made in each of the last two financial years for which the time limit to file a return of income under subsection (1) of section 139 of the said Act has expired.

  • The registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (i) of the first proviso of subsection (3) of section 54 i.e. zero-rated supplies made without payment of tax. Here, we have to note that the refund should have been received in the preceding financial year.
  • The registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (ii) of the first proviso of subsection (3) of section 54 i.e. Inverted duty structure. Here, we have to note that the refund should have been received in the preceding financial year.
  • The registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year. Now, while filing the return for each month, the taxpayer now has to keep track that whether his cumulative discharge of tax liability of output tax through electronic cash ledger is more than 1% up to the month of filing of return.
  • The registered person is: 
    • Government Department or
    • A Public Sector Undertaking or
    • A local authority or
    • A statutory body.

Provided further that the Commissioner or an officer authorized by him on this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit
The rule is effective from 1st January 2021.

Source: https://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-94-central-tax-english-2020.pdf
 

 

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