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Discharge of GST liability


The government introduced the Goods and Service Tax Act (GST) in India on July 1 2017, to implement a unified tax structure that yields increased transparency and accountability. Availing input tax credit (ITC) is one of the essential processes under GST.

A taxpayer is entitled to claim the input tax credit of the inward supplies received during the course of business subject to the condition that firstly, the recipient should be registered under the GST act and secondly, all the needs mentioned under Section 16 of the Central Goods and Services Tax Act, 2017 has adhered.

As per the GST law, every registered person has to deposit their net tax liability, after setting off ITC available in their electronic credit ledger of GST portal, by making cash payment (exception given to composition taxpayer) to the government.

The GST portal maintains three electronic ledgers at the GST portal of every taxpayer, namely:

  • Electronic liability ledger
    The ledger shows the total tax liability of a registered person at any point in time.
  • Electronic cash ledger
    This ledger will display the total amount of funds deposited by the taxpayer to discharge his tax liability or interest or late fee or penalty any other amounts and balance available after utilisation.
  • Electronic credit ledger
    All the taxes charges on the inputs would be set down in the electronic credit ledger.

All the payments under GST have to be made by either using the input tax credit accessible in the electronic credit ledger or through the electronic cash ledger. However, this system of GST payments was modified with the introduction of RULE 86B

Date of introduction of RULE 86B
This rule has been made applicable from January 1 2021. As per this rule, the restriction has been imposed on the availment of the ITC balance in the electronic credit ledger on the GST portal. As per the restriction, the registered persons cannot use ITC in discharging output tax liability above 99%. In simple words, the tax liability of the remaining 1% has to be released by making payment from the electronic cash ledger and not by utilising the amount available in the electronic credit ledger.

The rationale for introducing this rule
To curb tax evasion by issuing fake invoices, the Central Board of Indirect Taxes and Customs (CBIC) had made it mandatory for taxpayers to have a monthly turnover of more than Rs 50 lakh to pay 1% of their GST liability in cash. In addition, this new rule restricts the use of input tax credit (ITC) for discharging GST liability to 99% from January 1, 2021.

However, this restriction has been eased out in cases where the managing director or any partner has paid more than Rs 1 lakh as income tax or the registered person has received a refund amount of more than Rs 1 lakh in the preceding financial year on account of any unutilised input tax credit.

Suppose any taxable person is making supplies of both taxable and spared goods, or he is using the goods or services or both for business purposes or any other purpose. In that case, the ITC shall also be appropriated between the taxable and exempted supplies.

Although the introduction of this rule may result in blocking of funds for some time and may require increased working capital for business, on the other hand, the government is also taking steps in ensuring that the ultimate purpose of introduction of GST should be achieved by removing inefficiencies’ in erstwhile input tax credit availment chain.

At AJSH, we assist our clients with various GST matters (GST registration, GST advisory, GST assessments, filing of GST returns, claiming & GST audits) by providing them with adequate support and guidance from our end. If you have any questions or would like to know more about the discharge of GST liability, kindly contact us.


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