The new exception is tied to goods and supplier tax, not merely a trader label
The first proviso to CGST Rule 86B now includes clause (f), inserted by Notification 20/2025–Central Tax with effect from 1 February 2026. It exempts a registered person other than a manufacturer from this rule only in respect of Rule 31D goods on which the supplier has paid tax on the retail-sale-price basis. This guide, checked on 28 October 2026, addresses that specific relief rather than repeating a complete general Rule 86B guide. GST Council confirmation of the amendment and commencement. CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D.
Establish the ordinary rule before applying relief
The main rule restricts electronic-credit-ledger use to 99% of output tax liability where monthly taxable supply value, other than exempt and zero-rated supplies, exceeds ₹50 lakh. The threshold concerns supply value; the percentage concerns output tax liability. Test any applicable exception before deciding the payment restriction. Being below the boundary or meeting another exception is different from qualifying under the new goods-specific clause. CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D.
Match the goods to Rule 31D
The relevant rule specifies tariff entries and descriptions, including exclusions; it is not a rule for every packaged product with an MRP. Link product classification, packages, purchase invoices and the supplier's RSP-based tax treatment. The ordinary commercial purchase price alone does not prove that the supplier paid tax on the prescribed basis. Keep evidence of actual supplier tax compliance rather than relying solely on a generic purchase-order declaration. CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D.
Preserve the manufacturer distinction and the limited scope
Clause (f) says other than a manufacturer and only in respect of the specified goods. Do not represent the relief as an exemption for every registration holding a trading licence, or as relief for unrelated services and other goods. Determine the person's actual status and examine mixed activity carefully. These examples assume an established status and independently attributable output-tax amounts; they do not invent a statutory turnover-ratio apportionment formula. CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D.
Do not remove covered goods from the threshold without authority
A goods-specific exception from the restriction is not an instruction to rewrite the main monthly supply-value test. Keep the value calculation and the relief calculation separate. Where a registration has different supply streams, maintain a transaction-to-liability bridge showing which amounts the exception supports and which need further Rule 86B analysis. If attribution is uncertain, resolve it instead of applying a guessed credit percentage to the whole registration. CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D.
Relief does not create ITC or remove GST liability
A Rule 86B exception does not establish that purchased credit is eligible, eliminate a shortfall in eligible credit or waive the output tax itself. Check the other provisos where relevant: the rule also addresses specified income-tax, refund, cumulative cash-payment and public-body cases, and permits removal by the designated authority after verification and safeguards. No automatic permission, portal override or complete exemption from other credit conditions is claimed here. CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D.
Applicable primary references
CGST Rules: Rule 86B first proviso (f), main restriction and Rule 31D GST Council December 2025 newsletter: Notification 20/2025 and February 2026 commencement
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Covered goods only
Assume an eligible non-manufacturer has ₹12,00,000 output tax entirely attributable to qualifying Rule 31D goods, with supplier RSP-tax payment established. Clause (f) removes this rule's restriction for that liability. It does not reduce the ₹12,00,000 tax to zero; actual payment and eligible credit still need reconciliation.
Illustrative example 2: Manufacturer cannot use this clause merely for the product
Assume a manufacturer has output tax ₹10,00,000, the main rule applies and no other exception is available. Clause (f) is unavailable on the stated manufacturer facts. The 99% ceiling permits at most ₹9,90,000 from the credit ledger under this rule, leaving at least ₹10,000 outside that credit use.
Illustrative example 3: Separate an unrelated liability stream
Assume established eligible non-manufacturer relief covers goods liability ₹8,00,000, while unrelated supplies generate directly attributable output tax ₹4,00,000. Assume the main restriction applies to that residual liability and no other exception does. Its 1% amount is ₹4,000. Do not automatically exempt the entire ₹12,00,000 because some qualifying goods are sold.
Illustrative example 4: Evidence population is not automatic eligibility
Ten purchase lots are in the proposed exception file; eight have satisfactory supporting evidence and two remain unresolved. If each lot's linked liability is ₹80,000, the supported population is ₹6,40,000 and unresolved population ₹1,60,000. These figures identify review scope; they do not themselves decide the final legal entitlement for the unresolved lots.
Illustrative example 5: Use tax rather than turnover for the percentage
Assume relevant monthly supply value ₹60,00,000 and independently verified relevant output tax ₹12,00,000, with no exception available. The rule's 1% amount is ₹12,000, not 1% of turnover, ₹60,000. The arithmetic difference is ₹48,000; no uniform product tax rate is inferred from the aggregate figures.
Illustrative example 6: Credit shortfall survives relief
An eligible covered-goods case has output tax ₹12,00,000 and only ₹10,00,000 of usable eligible credit. The remaining ₹2,00,000 still needs discharge through the applicable payment mechanism. Rule 86B relief does not manufacture another ₹2,00,000 of ITC.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the supply period | Clause (f) commencement and later amendment review |
| 2 | Test the main monthly threshold | Taxable values excluding exempt and zero-rated supply |
| 3 | Establish taxpayer status | Manufacturer versus stated eligible non-manufacturer |
| 4 | Classify Rule 31D goods | Tariff description and exclusions |
| 5 | Identify supplier RSP-tax treatment | Invoices, supporting records and payment evidence |
| 6 | Map covered supplies | Lot, product and output-liability linkage |
| 7 | Separate unrelated streams | Direct attribution and unresolved questions |
| 8 | Review other exceptions | Actual relevant proviso and supporting evidence |
| 9 | Reconcile usable ITC and payment | Eligibility, ledger balance and residual liability |
| 10 | Retain the conclusion | Supported relief, unresolved amounts and review approval |
Sixteen practitioner FAQs
1. When did clause (f) commence?
1 February 2026 under the identified amendment.
2. Is every trader automatically exempt?
No. Verify the person's status, specified goods and supplier RSP-tax payment.
3. Does the clause cover manufacturers?
Its wording applies to registered persons other than manufacturers.
4. Does any MRP-labelled product qualify?
No. Match the Rule 31D tariff entry and description.
5. Is supplier RSP tax merely a pricing assumption?
No. The clause requires tax paid by the supplier on that basis.
6. Is the relief registration-wide for unrelated supplies?
The wording limits it to the specified goods.
7. Should covered goods automatically be removed from the main threshold?
No such threshold rewriting is asserted; separate the value test from relief.
8. What is the main value boundary?
Monthly relevant taxable supply value must exceed ₹50 lakh for the main rule's stated trigger.
9. Does exactly ₹50 lakh exceed the boundary?
No, although other legal obligations remain.
10. Is the percentage calculated on turnover?
No. The main percentage restriction concerns output tax liability.
11. Does clause (f) remove output tax?
No. It removes the specified Rule 86B restriction for qualifying goods.
12. Does relief establish ITC eligibility?
No. Credit eligibility and availability remain separate questions.
13. Can a turnover-ratio split always be assumed for mixed supplies?
No universal apportionment formula is invented here; establish the liability attribution and legal treatment.
14. Does missing evidence automatically prove no relief exists?
It identifies a verification gap; investigate and reach a supported conclusion.
15. Are other exceptions irrelevant after February 2026?
No. Apply any independently available proviso on its actual conditions.
16. What is the most useful control file?
A product-and-lot bridge connecting classification, supplier tax evidence, output liability, credit and payment.
Conclusion
Verify the goods-specific Rule 86B exception for non-manufacturers dealing in Rule 31D goods, keeping supplier RSP-tax evidence and unrelated output tax separate.