No Rule 86B Exemption Without ₹1 Lakh IT Paid by Partner | AAR

Case Details: Aadinath Agro Industries, In re. - [2025] 175 taxmann.com 14 (AAR-RAJASTHAN)

Judiciary and Counsel Details

• Utkarsh & Dr. Akhedan Charan, Member
• Mukesh Chordiya, C.A. for the Applicant.

Facts of the Case

The applicant, a partnership firm registered under GST, recorded a monthly taxable turnover exceeding Rs. 50 lakh during the financial year 2024–25, thereby attracting the restriction under Rule 86B of the CGST Rules, 2017 and the Rajasthan GST Act. As per Rule 86B, a registered person having taxable turnover above Rs. 50 lakh in a month is restricted from using more than 99 percent of the available balance in the Electronic Credit Ledger for discharging output tax liability, and must mandatorily pay at least 1 percent in cash.

The applicant sought exemption from this restriction by invoking the first proviso to Rule 86B which provides that the restriction shall not apply where the registered person or a partner has paid income tax exceeding Rs. 1 lakh in each of the preceding two financial years. It was submitted that although neither the firm nor any individual partner had paid over Rs. 1 lakh in income tax individually, the cumulative income tax paid by the firm and its partners exceeded the threshold. The matter was accordingly placed before the AAR Rajasthan.

AAR Held

The AAR Rajasthan, held that the exemption under Rule 86B was not available to the applicant. It was observed that Rule 86B requires that either the registered person or a specified individual such as a partner must have individually paid more than Rs. 1 lakh in income tax in each of the last two financial years, and that there is no provision permitting aggregation of the income tax paid by multiple persons to meet this threshold. As neither the applicant firm nor any of its individual partners satisfied this criterion, the restriction remained applicable, and the applicant could utilize only 99 percent of the credit balance for payment of tax.