Cumulative ₹1L Income Tax Paid by Firm and Partners Not Sufficient for Rule 86B Exemption: AAR
AAR clarified that the Rule 86B exemption is not applicable where neither the firm nor any individual partner has paid over ₹1 lakh income tax in each of the last two financial years, even if their combined tax exceeds the threshold.
The Rajasthan Authority for Advance Ruling (AAR) has ruled that exemption under Rule 86B of the CGST Rules is not applicable where neither the individual partner nor the firm has paid more than ₹1 lakh as income tax in each of the last two financial years, even if the cumulative tax paid by the firm and all partners together exceeds ₹1 lakh.The applicant, Aadinath Agro Industries, is...
The Rajasthan Authority for Advance Ruling (AAR) has ruled that exemption under Rule 86B of the CGST Rules is not applicable where neither the individual partner nor the firm has paid more than ₹1 lakh as income tax in each of the last two financial years, even if the cumulative tax paid by the firm and all partners together exceeds ₹1 lakh.
The applicant, Aadinath Agro Industries, is a registered partnership firm engaged in spice processing. They have reported a monthly taxable turnover in their firm that exceeds ₹50 lakh and thereby attract Rule 86B exemptions.
The firm and its partners together paid over ₹1 lakh in income tax, neither the firm nor any individual partner paid more than ₹1 lakh themselves in the subject Financial year (FY) 2022-2023.
The applicant approached the AAR seeking clarification on whether the total income tax paid by the firm and its partners together could be considered for exemption under Rule 86B.
The AAR observed that neither the individual partner nor the firm has paid income tax more than 1 lakh during the last two financial years.
The Advance Ruling Bench comprising Utkarsh (Central Tax Member) and Dr. Akhedan Charan (State Tax Member) noted that there is no provision of exemption for such conditions in the said rule, where exemption can be considered for total income tax paid by the partners and the firm together and the exemption as per Rule 86B(a) is not applicable on the taxpayer. Therefore, the applicant does not qualify for the exemption.
The AAR clarified that the Rule requires that the restriction shall not apply if any of its two partners of the firm have paid more than one lakh rupees as income tax under the Income-tax Act, 1961, in each of the last two financial years. The provision does not allow clubbing of income tax paid by the firm and its partners.
The order makes it clear that for the Rule 86B exemption, individuals should pay the tax and the cumulative tax payment cannot be considered for exemptions under the income tax regime.
The applicant was represented by Mukesh Chordiya.
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