Rule 86B touches only a small slice of GST-registered businesses. It applies just to those whose taxable turnover in a single month crosses ₹50 lakh, and even then it asks for only 1 percent of that month's output tax to be paid in cash instead of input tax credit. If any one of five exemptions fits you, the rule does not apply at all.
The rule was inserted into the CGST Rules 2017 by Notification No. 94/2020-Central Tax dated 22 December 2020, and it took effect from 1 January 2021. You can read the current text on the official CBIC portal at https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/rules/cgst_rules/active/chapter9/rule86b_v1.00.html .
Work through these three checks in order before you file your GSTR-3B for the month.
The five carve-outs are set out in the provisos to Rule 86B. Meeting any single one is enough.
| Exemption | Condition |
|---|---|
| Big income tax payer | The registered person, or the proprietor, karta, managing director, any two partners, whole-time directors, members of the managing committee of an association or board of trustees, has paid more than ₹1 lakh as income tax under the Income-tax Act 1961 in each of the last two financial years for which the time to file the return has passed. |
| Zero-rated refund | The registered person received a GST refund of more than ₹1 lakh in the previous financial year on account of unutilised input tax credit from zero-rated supplies made without payment of tax. |
| Inverted duty refund | The registered person received a GST refund of more than ₹1 lakh in the previous financial year on account of an inverted duty structure. |
| Already paid 1 percent in cash | The registered person has already discharged more than 1 percent of total output tax liability in cash through the electronic cash ledger, added up from the start of the current financial year to that month. |
| Government body | The registered person is a Government department, a public sector undertaking, a local authority or a statutory body. |
Two different numbers do two different jobs, and mixing them up is the most common mistake.
Here is the math with a simple example. Suppose Kashvi Pathak's firm makes taxable supplies worth ₹90 lakh in July. That is above the ₹50 lakh line, so Rule 86B applies for July unless one of the five exemptions fits. Say her output tax for the month works out to ₹10 lakh.
So the rule never asks for 1 percent of your ₹90 lakh sales. It asks for 1 percent of the ₹10 lakh tax. For most affected firms the cash amount is small, but it cannot be skipped.
If you are still setting up and this rule feels early for you, start with our guide on how to apply for GST registration in 2026.
These two rules sound alike but do very different things, so do not confuse them.
In short, Rule 86B asks a large taxpayer to pay a slice in cash, while Rule 86A stops you from using credit at all until the doubt is cleared. If your credit has been frozen, see our separate Rule 86A blocked ITC action guide.
No. The rule only starts to apply when the value of your taxable supply in a single month is more than ₹50 lakh. Below that line it never applies, so you can use input tax credit to pay all of your output tax.
On your tax. The ₹50 lakh test uses your sales value, but the 1 percent minimum cash payment is calculated on your output tax liability for the month, not on your turnover.
Only taxable supplies count. You leave out exempt supplies and zero-rated supplies, such as exports and supplies to a Special Economic Zone, when you check whether you have crossed ₹50 lakh in the month.
Non-compliance is a listed ground for suspension and later cancellation of your GST registration under Rule 21(g) of the CGST Rules. So it is not just a filing point, it can put your registration at risk.
Rule 86B is an automatic rule that makes large taxpayers pay at least 1 percent of output tax in cash. Rule 86A is a discretionary action where an officer freezes your input tax credit on suspicion of fake or wrong claims. They are separate rules.
No. The income tax exemption needs more than ₹1 lakh of income tax paid in each of the last two financial years for which the return filing time has passed. One year alone is not enough.
It is a month by month check. You test your taxable supply for each month on its own, so the rule can apply in a high-sales month and not apply in a slower month.
No. Exports and supplies to a Special Economic Zone are zero-rated supplies, and zero-rated supplies are left out when you work out whether your monthly taxable supply has crossed ₹50 lakh.
For a plain-language walk through your rights and the wider GST and RTI system, keep The RTI Playbook handy. It links the paperwork points on this page to the bigger picture of dealing with government offices in India.