🚨 Rule 86B GST Alert: How to Fix 1% Cash Payment Mistakes! | DRC-03 Procedure

Added: 2026-05-23

[00:00:00]Did you pay your entire GST liability using ITC and ignore the mandatory 1% cash payment rule?

[00:00:08]If your monthly turnover exceeds 50 lakhs, you might have just have triggered a major non-compliance under rule 86B.

[00:00:16]But don't worry, there is a legal way to rectify this before the department sends a notice.

[00:00:21]Let's break down the 86B rectification process.

[00:00:25]First of all, let's understand the mistake.

[00:00:28]Rule 86B is simple. If your taxable supply in a month is more than 50 lakhs, you can't use ITC to pay more than 99% of your output tax.

[00:00:40]You must pay at least 1% in cash. Many taxpayers inadvertently use 100% of ITC, especially when they have huge credit balance.

[00:00:50]While the ITC itself isn't illegal, using it for the last 1% is a procedural violation that can lead to registration suspension.

[00:01:00]What is the first step? Pay via DRC-03. So, how to fix it? First, you must recompute your liability for those periods. Calculate exactly how much that 1% cash component should have been.

[00:01:15]You cannot go back and edit the GSTR-3B, so you must pay this shortfall voluntarily.

[00:01:21]Use form DRC-03 on the GST portal.

[00:01:24]Select voluntary as the cause and ensure you pay the amount from your electronic cash ledger.

[00:01:32]All right. Now, what is the second step?

[00:01:34]Getting your ITC back. Now, you have paid the 1% in cash, but you have also already paid it once via ITC. This is double taxation. To get your ITC back, you have two routes. Route one is file a refund application using section 54 subsection one for the excess tax paid through ITC.

[00:01:56]Route two, and often the most practical one is requesting your jurisdictional officer to re-credit the amount to your electronic credit ledger using form PMT-3.

[00:02:09]Now, there are certain exceptions to rule 86B.

[00:02:13]Before you panic, check if you're exempt. Rule 86B doesn't apply if you or your directors paid more than 1 lakh in income tax in the last 2 years.

[00:02:24]You have received a refund of over 1 lakh for unutilized ITC on exports or inverted duty structure.

[00:02:31]You're a government department or a public sector undertaking.

[00:02:36]If these don't apply, the 1% rule is mandatory to you.

[00:02:41]Rule 86B is a small rule with big consequences.

[00:02:46]If you have made a mistake, fix it via DRC-03 today.

[00:02:50]Documentation is your best friend during GST audit.