Rule 86B allows certain exceptions, as mentioned below:
After examining Rule 86B, it is clear that the above rule only applies to large taxpayers. Small and micro businesses are not affected by this rule.
The aim of implementing this rule is to prevent the issuance of fake invoices that claim fraudulent input tax credits to discharge liabilities. It also prevents scammers from claiming high turnovers when they have none.
Further clarification from the CBIC states that 1% is to be computed on the tax liability in a month and the turnover of the particular month.
Let’s use the following example to understand it better:
A taxpayer named Mr A sold products for Rs. 1 crore at a 12% tax rate. According to this rule, he can fulfil his obligation in this situation up to 99% through ITC and pay Rs. 12,000 in cash.
Rule 86B has been introduced to stop fake claims for input tax credit. The rule affects only large taxpayers who have minimum taxable supplies of Rs. 50 lakhs in a month. Yes, this rule will also affect the large taxpayers who legitimately pay their tax dues, making it a little difficult for them, but the Government’s ultimate goal is to prevent fake invoices and eventually stop tax evasion.