GST Rule 86B Exemption Denied if No Single Partner Nor Firm Has Paid More than Rs. 1L Income tax: AAR

The applicant, Aadinath Agro Industries, is a partnership firm that is engaged in the business of a spice processing unit and is registered under GST. The firm’s monthly taxable turnover is more than Rs. 50 lakh. This limit makes the firm fall under the restrictions of Rule 86B of the CGST Rules, which restricts the use of input tax credit (ITC) for discharging more than 99% of output tax liability.

The total income tax paid by the firm and the partner for the financial year 2023-24 was Rs. 1,04,427. However, no single partner or the firm has paid above Rs. 1 lakh individually. The combined tax paid by the partner and the firm is above Rs. 1 lakh.

Questions Asked by Applicant

The applicant made an application seeking an advance ruling for the following questions:

• Whether the cumulative tax payment of the firm and its partners can be considered for the exemption under Rule 86B?

• Whether the firm qualifies for exemption, even if no single partner has paid more than 1 lakh individually?

What Did the Ruling Say?

As per the Rajasthan Authority for Advance Ruling:

• The total income tax (Rs. 1,04,427) paid by the firm and its partners cannot be considered for the exemption under Rule 86B. There are no such rules of exemption where the total income tax paid by the firm and partners can be considered for exemption.

• The exemption does not apply even if the combined income paid by the partner and firm is above Rs 1 lakh, as neither the firm nor the partner has paid income tax above Rs 1 lakh individually.

Refer to the Advance Ruling for detailed information.