Rule 86B GST: 1 Percent Cash Payment and Who It Applies To 2026

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.

1. Is your value of taxable supply in a single month more than ₹50 lakh? For this test you leave out exempt supplies and zero-rated supplies. If the answer is no, Rule 86B never applies to you that month. Stop here.
2. If yes, do you meet any one of the five exemptions in the table below? If even one fits, the rule still does not apply and you may use input tax credit as normal.
3. If your monthly taxable turnover is above ₹50 lakh and no exemption fits, then for that month you must pay at least 1 percent of your output tax in cash, and you may use input tax credit for at most 99 percent.

The five carve-outs are set out in the provisos to Rule 86B. Meeting any single one is enough.

Two different numbers do two different jobs, and mixing them up is the most common mistake.

• The ₹50 lakh test looks at your sales, that is the value of taxable supply in the month.
• The 1 percent is worked out on your tax, that is your output tax liability for the month, not on your sales.

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.

• She may pay up to 99 percent of that tax, which is ₹9,90,000, using input tax credit.
• She must pay at least the remaining 1 percent, which is ₹10,000, in cash through her electronic cash ledger.

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.

1. Each month, before you file GSTR-3B, add up the value of your taxable supply. Leave out exempt supplies and zero-rated supplies.
2. If that value is ₹50 lakh or less, you need to do nothing extra under Rule 86B.
3. If it is above ₹50 lakh, check whether any one of the five exemptions fits you. Keep proof ready, for example income tax challans for the last two years or the refund sanction order.
4. If no exemption fits, make sure at least 1 percent of that month's output tax is paid in cash through the electronic cash ledger, and that input tax credit covers no more than 99 percent.
5. Keep clean records. Non-compliance with Rule 86B is a listed ground for suspension and cancellation of GST registration under Rule 21(g) of the CGST Rules. If your registration is ever suspended or cancelled, our GST registration restoration action plan walks you through getting it back.

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.

• Rule 86B is the one on this page. It is an automatic, turnover-based rule. If your monthly taxable turnover is above ₹50 lakh and no exemption fits, the law itself forces at least 1 percent of your output tax to be paid in cash. No officer has to act for it to bite.
• Rule 86A is different. Under it, a tax officer blocks or freezes the input tax credit sitting in your electronic credit ledger when the officer has reason to believe the credit was claimed on fake or wrong invoices. It is a discretionary action by an officer, aimed at suspected fraud, not an automatic turnover rule.

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.