Paid the cash late? Work out the Section 50 interest — or check the other turnover-based limits with the aggregate turnover calculator.
Rule 86B of the CGST Rules, 2017 was inserted with effect from 1 January 2021 by Notification 94/2020-Central Tax. It says that a registered person shall not use the amount in the electronic credit ledger to discharge more than 99% of the output tax liability in a month in which the value of taxable supply — other than exempt supply and zero-rated supply — exceeds ₹50 lakh. The practical effect is that at least 1% of that month’s output tax has to be paid from the electronic cash ledger, however much credit is lying unused. The rule continues unchanged in its main limb for FY 2025-26 and FY 2026-27.
The ₹50 lakh test is monthly, not annual, and it looks only at taxable supplies: exempt supplies and zero-rated supplies (exports and supplies to SEZ) are left out. The rule speaks of "the registered person", so it is applied registration by registration. And the 1% is measured on output tax, which Section 2(82) of the CGST Act defines to exclude tax payable under reverse charge — reverse-charge tax is paid in cash anyway, and neither enters the base nor counts as cash paid.
The first proviso then lists the cases where the restriction does not apply. (a) The registered person — or its proprietor, karta or managing director, or any two of its partners, whole-time directors, managing-committee members or trustees — has paid more than ₹1 lakh of income tax in each of the last two financial years for which the due date for the return under Section 139(1) has expired. (b) A refund of more than ₹1 lakh of unutilised input tax credit on zero-rated supplies was received in the preceding financial year. (c) A refund of more than ₹1 lakh was received in the preceding financial year on account of an inverted duty structure. (d) Output tax paid through the cash ledger is in excess of 1% of the total output tax liability, applied cumulatively up to that month in the current financial year. (e) The registered person is a Government department, a public sector undertaking, a local authority or a statutory body. A further proviso lets the Commissioner, or an officer authorised by him, remove the restriction after verification.
One exception is new. With effect from 1 February 2026, Notification 20/2025-Central Tax added clause (f): a registered person other than a manufacturer is exempt from the rule in respect of goods specified under Rule 31D on which the supplier has already paid tax on the basis of retail sale price. Where that covers only part of the sales, the remaining supplies are still tested in the ordinary way.
A trading company has taxable sales of ₹80 lakh in August 2026 with output tax of ₹14,40,000, and ₹20,00,000 in its electronic credit ledger. From April to July 2026 its output tax liability was ₹60,00,000, of which only ₹30,000 was paid in cash. Its directors each paid less than ₹1 lakh of income tax last year, and it has had no refunds.
