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Input Tax Credit – Restriction on ITC Utilisation in Electronic Credit Ledger

The CBIC (Central Board of Indirect Taxes and Customs) vide notification no. 94/2020 on 22nd December, 2020 has introduced new rule which is Rule 86B. Rule 86B has been effective from 1st January 2021.

According to the new Rule 86B, ITC has been reduced from 10% to 5% of eligible ITC if Input Tax Credit to be availed in respect of invoices does not uploaded by suppliers in their GSTR-1/ Invoice Furnishing Facility (IFF).

According to the CGST act- section 16(2) , among other conditions for availing ITC, one of the condition that the taxpayer need to have tax invoice or other tax paying document for which person is claiming Input Tax Credit. CGST- Rule 36 lays down document & other condition based on that the registered person can claim ITC. In the rule 36 there is a sub rule known as Sub rule (4) which specifies the amount of ITC that can be claimed against the invoices/debit note uploaded and invoices does not uploaded by the suppliers.

According to the existing rule ITC to be availed by registered person on invoices details of which are not uploaded by supplier in GSTR-1 or IFF (Invoice Furnishing Facility), cannot exceed 10% of the eligible credit available.

CBIC has amended the said sub-rule which are effected from 01 January 2021 CBIC to lower the said percentage of Input Tax Credit from 10% to 5%.

From 1st January 2021, however according to the Rule 36(4), the ITC will be available as per the invoices uploaded by respective suppliers either in their Invoice Furnishing Facility (IFF) or by using the GSTR-1.

What are the Restrictions on The Use of Amount Available in Electronic Credit Ledger (Rule 86B)?

From 01 January 2021 the new rule 86B come into effect of CGST rule to restrict the amount available in electronic credit ledger, if the value of taxable supply other than exempted and zero rated supply, which a registered person can use to discharge his/her output liability to 99% of such tax liability, in a month exceed INR 50 lacs. This rule overrides all rules.

What are the Exception to Rule 86B?

1. If said Person/ Director/ Karta/Trustees have paid more than INR 1 lac of income tax, in last 2 financial year.

2. If a registered person in case of Zero rated supplies has received a refund of more than INR 1 lac in preceding financial year for unutilized Input Tax Credit without paying of tax or inverted duty structure.

3. If a registered person has discharged their liability towards output tax by electronic cash ledger amount in current financial year in excess of 1% of total output liability upto said month

4. If registered person is:

  • Government Department
  • PSU
  • Local Authority
  • Statutory Body.