GST Rule 86B: the ₹50 lakh a month test and the 1% cash payment, with the exceptions

Last updated 23 Oct 2026 · India

Short answer. Under Rule 86B of the CGST Rules 2017, a registered person whose value of taxable supply (other than exempt and zero-rated supply) exceeds ₹50 lakh in a month cannot use the electronic credit ledger to pay more than 99% of the output tax. So at least 1% is paid in cash in GSTR-3B. It does not apply where, for example, the person (or its proprietor, partners or directors) paid income tax of more than ₹1 lakh in each of the last two financial years, received a refund of more than ₹1 lakh of unutilised ITC on zero-rated supplies or inverted duty in the previous financial year, has paid more than 1% of total output tax in cash cumulatively in the current year, or is a government department, PSU, local authority or statutory body.

Worked example

Item	Amount
Taxable supply in October	₹80,00,000 (above ₹50 lakh)
Output tax at 18%	₹14,40,000
Maximum paid from ITC (99%)	₹14,25,600
Minimum paid in cash (1%)	₹14,400

The ₹50 lakh test is applied to the month's taxable value, not the year's turnover. Exempt and zero-rated (export, SEZ) supplies are left out of the count.

Common mistakes

Assuming the exception without proof. Keep the income-tax return acknowledgements of the last two years ready; the exception is about tax actually paid, not just returns filed.
Counting exports in the ₹50 lakh. Zero-rated supplies are excluded.
Forgetting the cumulative 1% exception. Cash already paid during the financial year counts.
Not planning cash flow in a heavy month (festival sales); the 1% has to be in the cash ledger by the GSTR-3B date.

Checklist

Month's taxable supply (excl. exempt and zero-rated) above ₹50 lakh?
Any exception documented (ITR, refund order, cumulative cash)?
Cash ledger funded with at least 1% before filing GSTR-3B

Frequently asked questions

What is Rule 86B in GST?

A restriction in the CGST Rules: if taxable supply (excluding exempt and zero-rated) exceeds ₹50 lakh in a month, ITC can pay at most 99% of output tax, so at least 1% is paid in cash.

Who is exempt from Rule 86B?

Among others: persons who (or whose proprietor, partners or directors) paid income tax over ₹1 lakh in each of the last two financial years; those who received refunds over ₹1 lakh of unutilised ITC in the previous year; those who already paid over 1% of output tax in cash in the year; and government bodies and PSUs.

Are exports counted for the ₹50 lakh limit?

No. Zero-rated supplies and exempt supplies are excluded.

Official sources

Not tax or legal advice. This is a free explainer of public rules; deadlines and rules can change by notification, so confirm on the official portal or with your CA before you file. Last checked 23 Oct 2026.

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