The Association of Tax Lawyers, a national body representing tax professionals and advocates, submitted a formal representation to the Union Finance Minister on April 19, 2025, requesting the deletion or substantial amendment of Rule 86B of the CGST Rules, 2017. This rule, effective from January 1, 2021, mandates that businesses with monthly taxable turnover exceeding ₹50 lakh must discharge at least 1% of their GST liability in cash, regardless of the input tax credit (ITC) available. The Association argues that while Rule 86B aims to prevent fraudulent ITC claims, it adversely impacts genuine taxpayers—especially trading entities operating with low margins—by causing permanent blockage of ITC and straining working capital. Additionally, the rule creates an uneven playing field by exempting businesses with turnover below ₹50 lakh, potentially encouraging underreporting. The Association also notes that existing legal provisions like Rule 86A, Rule 21A, and Section 132 already provide mechanisms to address fraud. They urge the Ministry and the CBIC to either delete Rule 86B entirely or amend it to exempt compliant taxpayers and establish a refund mechanism for blocked credit. The representation highlights the need for equitable and efficient tax administration to support legitimate business activity and ensure smoother GST compliance.
ASSOCIATION OF TAX LAWYERS (Regd.-Delhi)
…… a Central Body of Indian Tax Lawyers
Lawyers Chamber, 30-DDU Marg, Rouse Avenue, New Delhi-110001
NATIONAL PRESIDENT
AJAY SINHA
Corporate Off:- 104, Lawyers Chamber
30-DDU Marg, Rouse Avenue, New Delhi
Ph: 0120-4576000, +91 9810422203
E-mail: sinhaandsons@hotmail.com
NATIONAL GENERAL SECRETARY
RAJNI KANT VERMA
Secretariat Off :- A-560,Kamla Nagar
Agra-282005
Ph: 9412257838, 9627849038
E-mail : rajnikant_adv@yahoo.co.in
Date: 19th April’ 2025.
To
Smt. Nirmala Sitharaman
Hon’ble Union Minister of Finance
Ministry of Finance, Government of India
North Block, New Delhi – 110001
Subject: Representation for removal of hardship caused by Rule 86B of CGST Rules, 2017 – Request for deletion in the interest of genuine taxpayers.
I, on behalf the Association of Tax Lawyers, a National Body comprising tax professionals and advocates practicing in the field of direct and indirect taxation across India, respectfully submit this representation for your kind consideration concerning Rule 86B of the CGST Rules, 2017, which has been in force since 1st January 2021.
Background:
Rule 86B imposes a restriction on the utilization of Input Tax Credit (ITC) by mandating that registered persons whose taxable turnover (excluding exempt and zero-rated supplies) exceeds ₹50 lakh in a month must discharge at least 1% of their output tax liability in cash, regardless of the amount of ITC legitimately available.
While the rule was introduced with the intent of curbing fake ITC claims, in practice it has caused serious difficulties to genuine taxpayers, particularly those engaged in trading of goods, where profit margins are very slim, and working capital efficiency is crucial.
Issues:
No Refund Mechanism for Accumulated ITC:
Trading dealers are not eligible for refunds of ITC, and the restriction under Rule 86B effectively leads to permanent blockage of legitimate credit, affecting working capital and cash flow.
Unequal Treatment of Taxpayers:
The rule introduces a discriminatory threshold—taxpayers with monthly turnover exceeding ₹50 lakh are subjected to cash payment, whereas those below the limit can utilize ITC fully, despite no distinction in compliance behavior.
Evasion by Manipulating Turnover:
The rule fails to address the very mischief it seeks to curb, as unscrupulous elements can simply restrict their monthly taxable turnover to below ₹50 lakh and avoid the rule altogether.
Alternative Enforcement Mechanisms Exist:
Provisions such as Rule 86A (blocking of credit), Rule 21A (suspension of registration), and Section 132 (penal consequences) are already available to the department to tackle fraudulent activities in a targeted manner, without affecting the larger population of compliant taxpayers.
Request for Reconsideration:
In view of the above difficulties, the Association of Tax Lawyers
respectfully urges the Hon’ble Ministry as well as CBIC to take up the matter for consideration in the forthcoming GST Council Meeting and;
Delete Rule 86B entirely from the CGST Rules, 2017, in the larger interest of equity and ease of doing business;
OR
Substantially amend the rule to ensure:
Exemption be granted to compliant taxpayers with consistent GST and income tax filing track records.
Refund mechanisms be developed for blocked ITC in genuine cases
We are confident that your esteemed office and CBIC will recognize the need to support genuine trade and commerce, especially when the economy is in a rebuilding phase. A balanced and fair compliance environment will go a long way in ensuring voluntary compliance and reducing litigation.
We shall be grateful if our concerns are considered positively and appropriate action is taken in this regard.
With regards,
For Association of Tax Lawyers
Yours Faithfully
(Rajni Kant Verma)
National General Secretary
CC To: For Information and necessary Action.
Shri Sanjay Kumar Agarwal
Chairman,
Central Board of Indirect Taxes & Customs
New Delhi
Date: 19.4.2025
Place: Agra
