5 Myths About 1% Cash Payment Rule 86B

To curb GST fake invoice frauds, CBIC on the suggestions of the GST Council’s Law Committee has passed GST Rule 86B to manage the fraudsters who benefit and pass on ineligible ITC by fake or dummy firms. There are some myths about the 1% Cash payment rule 86B that have been circulating on Social Media creating turmoil among the registered taxpayers.

So in this blog, we will bust the 5 myths about the 1% cash payment rule 86B under GST.

Myth 1: The opportunity of being heard will not be given if the GST officer believes that registration is obligated to be canceled. 

Fact: The GST laws passed by the Parliament and State Legislatures give that GST registration is at risk to be canceled for those individuals who have not furnished at least 6 returns. It is hence a false statement that the registration will be canceled without providing a proper reason. To protect the interest of revenue, GST Rule 86B has been passed in the law so fraudsters don’t flee with GST collected from their customers. 

It could be additionally noticed that no GST registration will be canceled without giving an appropriate opportunity of being heard. But the cancellation of GST registration is vital in situations where taxpayers look to pass on the immense fake input tax credit. Such activity won’t influence genuine registered taxable persons. Also, cancellation might be revoked by the GST officer if he/she finds fit. 

Myth 2: Even if there is an error in filing GST Return, GSTIN will be canceled. No alternative to address your errors.

Fact: This is by no means evident. Just in fraudulent situations where there are critical inconsistencies based on the data analytics, and not simple clerical errors, the activity of cancellation of GSTIN will be performed by the tax officers. An illustration of a fraudulent case and genuine error is the place where one has passed Input Tax Credit worth crores and not filet GSTR 3B returns, nor has he furnished Income Tax returns or unveiled less tax liability in Income Tax returns. The GST system is cautiously working towards curbing tax evasion such as fake invoices in the interest of genuine taxpayers. GST ecosystem is now getting equipped with advanced tools like Data analytics, Artificial Intelligence (AI), and Machine Learning (ML) to track down these fraudsters.

Myth 3: The proposed change will impact the ease of doing business. 

Fact: Not True. Fraudsters are misusing the GST framework by fooling the genuine taxpayers. Activity against fraudsters won’t affect the Ease of Doing Business which is accomplished in GST through registration, refund system, and self-compliance framework with practically no manual checks.

Myth 4: GST Rule 86B will be a burden on small taxpayers.

Fact: No, as such there will be no burden on the small taxpayers as 1% cash payment under rule 86B will be determined on the total tax liability and not on the turnover. For example, if the taxpayer has a sale of INR 50 Lakhs (assuming GST rate 12%) and the taxpayer is setting off 99% tax liabilities via ITC, then he only has to pay INR 6000 in cash as per rule 86B.

Myth 5: Every registered taxable person needs to pay 1% cash liability.

Fact: Rule 86B under GST is applied to those registered taxable people

1. Whose taxable supply value (excluding exempted supply and export) in the month is more than INR 50 Lakhs and
2. Whose annual turnover exceeds INR 6 Crores.

However, the 1% cash payment of liability rule will not be applicable for the following registered taxpayers:

1. INR 1 lakh or more is paid as the income tax in the last 2 immediate financial years.
2. A tax refund of INR 1 lakh or more has been collected for the export or reverse charge in the previous FY.
3. Has paid output tax liability via cash in excess of 1% out of the total output tax liability applicable for the month of the present FY.
4. Any Government Authority, Public Sector Undertaking, local authority, or statutory body.

About GSTrobo®

GSTrobo® (a division of Binary Semantics) is an authorized GSP and enlisted SDA with GSTN. GSTrobo® has an integrated and collaborative approach between E-Invoice, GST compliance, E-Way bill & telematics that has helped many organizations go digital completely with ease & compliance. The industry leaders are relying on the ease and simplicity of GST compliances for requirements ranging from Cloud-based solutions to Integrated Distributed Computing Solution utilizing powerful APIs and connectors from GSTrobo®.