When the Credit Ledger Is Blocked: Rules 86A and 86B

Published 12 October 2026

A business opens its electronic credit ledger to pay the month’s tax and finds that part of the balance cannot be used. Sometimes the ledger shows less than nothing: a negative balance that swallows each month’s new credit as it arrives. The cause is usually an order under rule 86A of the CGST Rules, by which an officer who believes credit was fraudulently availed or is ineligible stops it from being used, for up to a year, without first issuing a notice. A different restriction, in rule 86B, applies without any order: a business whose taxable supplies exceed Rs 50 lakh in a month must pay at least one per cent of its output tax in cash, unless an exception applies.

How the credit ledger works, and the order in which credit is used, is explained in The Three Electronic Ledgers. This guide covers the two restrictions.

What to have ready

Item	Where it comes from
The blocking entry, the officer’s details and any attachment	Portal (Blocked Credit Balance; Description and Attachment hyperlinks)
Ledger balance on the date of the order	Portal (electronic credit ledger)
Invoices, e-way bills, transport and receipt records, and payments for the supplies in question	Books
The supplier’s registration status and return filing status	Portal (search taxpayer)
Any notice or order under section 73, 74 or 74A for the same credit	Portal (notices and orders)
For rule 86B: monthly taxable supplies, output tax and cash paid, cumulatively for the year	Books; GSTR-3B
For rule 86B clause (a): income-tax paid by the person or the specified individuals in the last two years whose filing time has expired	Income-tax records
For rule 86B clauses (b) and ©: refund orders of the preceding year	Portal (refund orders)

Rule 86A: the text

Rule 86A was inserted by Notification No. 75/2019-Central Tax of 26 December 2019 and has not been amended since. Sub-rule (1) reads:

The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-

a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36- i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or ii. without receipt of goods or services or both; or

b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,

may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

Sub-rule (2) allows the officer, “upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist”, to “allow such debit”. Sub-rule (3) provides: “Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”

Who may block, and on what grounds

The officer. The power belongs to the Commissioner, or to an officer he authorises who is not below the rank of Assistant Commissioner. CBIC’s guidelines of 2 November 2021, “Guidelines for disallowing debit of electronic credit ledger under Rule 86A of the CGST Rules, 2017”, advise central tax Commissioners to authorise officers by the amount involved:

Ineligible or fraudulently availed credit	Officer
Up to Rs 1 crore	Deputy or Assistant Commissioner
Above Rs 1 crore and up to Rs 5 crore	Additional or Joint Commissioner
Above Rs 5 crore	Principal Commissioner or Commissioner

The guidelines allow the Additional Director General or Principal Additional Director General of the Directorate General of GST Intelligence to exercise the Commissioner’s powers. Where an audit under section 65 or 66 finds grounds, the audit Commissioner refers the case to the jurisdictional Commissioner. The guidelines bind central tax officers. State tax administrations act under the corresponding rule of their own GST rules.

The grounds. The four clauses are exhaustive. The guidelines restate them as five: a non-existent supplier, goods or services not received, tax not paid to the Government, a non-existent recipient, and credit taken without a valid document. They require the officer’s reasons to be “based only on one or more” of these.

Reasons to believe. Paragraph 3.1.4 of the guidelines describes the remedy as “by its very nature, extraordinary”. It “has to be resorted to with utmost circumspection and with maximum care and caution”, and “contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration of suspicion”. The officer considers the amount involved and whether blocking “is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue”. The reasons are “duly recorded by the concerned officer in writing on file” before the debit is disallowed (paragraph 3.3.1).

The amount. Paragraph 3.3.2 provides that “the amount disallowed for debit from electronic credit ledger should not be more than the amount of input tax credit which is believed to have been fraudulently availed or is ineligible”.

What blocking does not do. It does not determine that the credit is inadmissible, and it does not recover anything. Recovery requires a demand under section 73 or 74 for periods up to 2023-24, or under section 74A from 2024-25. Paragraph 3.4.3 of the guidelines asks that investigation and adjudication be completed “well within the period of restriction”, because blocking affects the taxpayer’s working capital.

How the taxpayer learns of it

No notice is required before the order. In Best Crop Science, discussed below, the Delhi High Court described rule 86A as “clearly an emergent provision” that “does not require a prior show cause notice to be issued to a taxpayer”.

The guidelines state that the action “is informed on the portal to the concerned registered person, along with the details of the officer who has disallowed such debit” (paragraph 3.3.3). The portal’s ledger FAQs and user manual describe what the taxpayer sees:

an email and an SMS informing the taxpayer that credit has been blocked;
a debit entry for the blocked amount in the electronic credit ledger;
a Blocked Credit Balance link, under Services > Ledgers > Electronic Credit Ledger, which shows the blocked amount by period, a “Description (Unblocked/Blocked)” hyperlink with the details of the officer, and an “Attachment” hyperlink to any document the officer uploaded.

According to the FAQs, the officer “may block CGST, SGST, IGST & Cess balance in whole or in part”.

Negative blocking

The portal allows an officer to block more than the ledger holds. The ledger FAQs state that “Tax Official can block the credit in excess of amount available”, and give an example. With a balance of Rs 100 and a block of Rs 120, the ledger shows –Rs 20. A later credit of Rs 30 is set against the negative balance, leaving Rs 10 usable. “Negative amounts in Electronic Credit Ledger cannot be utilized for payment of liabilities.”

Whether rule 86A permits this is the most litigated question under the rule. The courts are divided.

Best Crop Science Pvt Ltd v Principal Commissioner, CGST Commissionerate, Meerut (Delhi High Court, Division Bench, W.P.© 10980/2024 and connected petitions, 24 September 2024). In a batch of petitions, orders under rule 86A had blocked credit exceeding the balance in the taxpayers’ ledgers, creating negative balances. The revenue argued that the rule allowed it to disallow debit of “an amount equivalent” to the credit wrongly taken, whether or not that credit was still in the ledger. The Court held that the words “credit of input tax available in the electronic credit ledger” refer to “the credit, which is at the given point of time available in the taxpayer’s ECL”. Credit already used or refunded is not available, and rule 86A “is not a machinery provision for recovery of tax”. It concurred with the Gujarat High Court in Samay Alloys India (P) Ltd v State of Gujarat (2022) and the Telangana High Court in Laxmi Fine Chem v Assistant Commissioner. The orders were set aside “to the extent the impugned orders disallow debit from the respective ECL of the petitioners, in excess of the ITC available in the ECL at the time of passing of the impugned orders”. The Court also held that no prior notice is required, and that an order “is operative only for a maximum period of one year”.

Ishaan Metal v State of Haryana (Punjab and Haryana High Court, Division Bench, CWP-32723-2025, 19 November 2025). The petitioner’s ledger had been blocked on 17 February 2025 so as to show a negative balance. The Court followed its own decision of 4 November 2025 in Shyam Sunder Strips v Union of India. That decision had endorsed the view of the Gujarat, Delhi, Telangana and Bombay High Courts and declined to follow the Calcutta, Allahabad and Andhra Pradesh High Courts. It also records that the Supreme Court dismissed special leave petitions against two Delhi decisions following Best Crop Science (Kings Security Guard Services and Karuna Rajendra Ringshia) on 17 May 2025 and 9 July 2025. The revenue argued that those dismissals were in limine; the Court rejected that argument. The blocking entries were set aside to the extent they disallowed debit “in excess of ITC available therein” when the order was made, leaving the department free to use the recovery provisions.

Suguna Sponge and Power Pvt Ltd v Superintendent of Central Tax (Andhra Pradesh High Court, Division Bench, W.P. No. 11338 of 2024, 13 December 2024). Credit of Rs 19,73,299 was blocked when, on the petitioner’s case, its ledger held no credit. The Court read the operative words “an amount equivalent to such credit” as referring to credit “created, wrongfully, by any of the means set out” in the rule, not to credit “actually available”. It held that “the scheme of this Rule is to put aside such amount of input tax credit, which has been wrongfully utilized, whether it is actually available in the credit ledger or not”. It agreed with the Allahabad High Court (R.M. Dairy Products LLP v State of U.P., 2021) and the Calcutta High Court (Basanta Kumar Shaw, 2022), and dismissed the petition. It also observed that the reasons recorded on the portal “barely pass muster”, the department having explained that the portal did not allow space for elaborate reasons.

The Supreme Court has not yet decided the question in a reasoned judgment. Within the jurisdiction of each High Court, its own view governs.

The one-year limit, and re-blocking

Under sub-rule (3) the restriction “shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction”. Paragraph 3.4.2 of the guidelines repeats that “upon expiry of one year from the date of restriction, the registered person would be able to debit input tax credit so disallowed, subject to any other action that may be taken against the registered person”. A restriction imposed on 15 November 2025 lapses once 15 November 2026 has passed.

M/s Creative Enterprises v State of Telangana (Telangana High Court, Division Bench, W.P. No. 19357 of 2025, 3 February 2026). The petitioner’s ledger had been blocked, unblocked and then blocked again on 30 May 2025, the day it was unblocked. The petitioner challenged the re-blocking as an extension beyond one year. The State produced an order of 1 May 2025 under section 74 of the State Act, raising a demand of Rs 4,95,64,354 that included credit disallowed for supplies from non-existent suppliers. The petition had not disclosed that order. The Court declined to interfere: the re-blocking “has a background in the imposition of tax, interest, fee and penalty in a proceeding under Section 74”, and a year had not passed since 30 May 2025. The decision does not hold that a block may be renewed indefinitely. It turned on a fresh block after an adjudication order and on the petitioner’s non-disclosure.

Representation and unblocking

Rule 86A prescribes no form for objecting to a block, and no hearing. Paragraph 3.4.1 of the guidelines provides that the officer, “either on his own or based on the submissions made by the taxpayer with material evidence thereof, may examine the matter afresh”. If satisfied that the credit is no longer believed ineligible, “either partially or fully”, the officer allows its use “up to the extent of eligibility”, recording reasons on file. According to the portal FAQs, unblocking posts a credit entry to the ledger and is notified by email and SMS, and an officer “can only unblock the credit … which has been blocked earlier”.

A representation is therefore a letter or submission to the officer who blocked the credit, identified through the Description hyperlink. It is supported by evidence on the ground stated: the supplier’s existence and filings, transport and receipt records, and payment of tax. It is signed by the proprietor, a partner, a director or an authorised signatory. Challenges to the order itself have been brought by writ petition, as in the cases above.

The GST Council, at its 57th meeting on 8 October 2026, recommended amending rule 86A “to provide a mechanism for enabling a taxpayer to file an objection against blocking of any amount in electronic credit ledger and to avail a personal hearing before the proper officer takes a decision on such objection”. No amendment has yet been notified.

Interest when blocked credit is found ineligible

Blocking does not itself create a liability to interest. If the credit is later determined to have been wrongly availed, interest under section 50(3) at 18 per cent runs only to the extent the credit was utilised, under rule 88B(3). Credit is utilised when the ledger balance “falls below the amount of input tax credit wrongly availed”, to the extent of the shortfall. Where the shortfall arises from payment of tax in a return, the date of utilisation is the return’s due date or filing date, whichever is earlier. For integrated tax credit, Circular No. 192/04/2023-GST tests the balance across the integrated, central and State tax heads together.

An illustration. The figures below are an illustration only.

A business takes credit of Rs 12,00,000 on invoices from a supplier later found non-existent, in its January 2026 GSTR-3B, filed on 20 February 2026. After the return’s payment, its ledger stands at Rs 8,00,000 and stays there.
On 15 March 2026 an officer blocks Rs 12,00,000 under rule 86A. On the portal’s practice the ledger shows –Rs 4,00,000, and the next Rs 4,00,000 of new credit is absorbed. On the view of the Delhi, Gujarat, Punjab and Haryana, Bombay and Telangana High Courts, the block is confined to the Rs 8,00,000 available on 15 March 2026.
If the credit is held ineligible and the business pays on 20 October 2026, Rs 4,00,000 was utilised from 20 February 2026. Interest under rule 88B(3) for 242 days is Rs 4,00,000 × 18 per cent × 242 ÷ 365 = Rs 47,737. The Rs 8,00,000 that stayed in the ledger was not utilised and carries no section 50(3) interest.

Rule 86B: the one per cent cash requirement

Rule 86B was inserted by Notification No. 94/2020-Central Tax of 22 December 2020, with effect from 1 January 2021. Section 49(12), inserted by section 110 of the Finance Act, 2022 from 1 October 2022, now supports it. That sub-section allows the Government to specify “such maximum proportion of output tax liability … which may be discharged through the electronic credit ledger”. The rule provides:

Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:

The threshold. The test is monthly: the value of taxable supplies, excluding exempt and zero-rated supplies, above Rs 50 lakh in the month. Output tax, under section 2(82), excludes tax payable by the person on reverse charge, which is paid in cash in any case.

The exceptions. The first proviso lifts the restriction where:

(a) the person, or its proprietor, karta, managing director, any two of its partners, whole-time directors, members of the managing committee or trustees, “have paid more than one lakh rupees as income tax under the Income-tax Act, 1961 … in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired”;
(b) it received a refund of more than Rs 1 lakh in the preceding financial year of unutilised credit on zero-rated supplies made without payment of tax, under clause (i) of the first proviso to section 54(3);
© it received a refund of more than Rs 1 lakh in the preceding financial year of unutilised credit on account of an inverted duty structure, under clause (ii) of that proviso;
(d) it “has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year”;
(e) it is a Government department, a public sector undertaking, a local authority or a statutory body.

A further proviso allows “the Commissioner or an officer authorised by him in this behalf” to remove the restriction “after such verifications and such safeguards as he may deem fit”.

Clause (f), from 1 February 2026. Notification No. 20/2025-Central Tax of 31 December 2025 inserted, after clause (e) of the first proviso and with effect from 1 February 2026: “the registered person other than a manufacturer shall be exempted from the provisions of this rule only in respect of goods specified under rule 31D, on which the tax has been paid by the supplier on the basis of retail sale price”. Rule 31D, inserted by the same notification, values pan masala and specified tobacco products on their retail sale price. Clause (f) frees a trader, but not a manufacturer, from rule 86B for those goods only. CBIC’s published text of rule 86B prints clause (f) after the second proviso, not after clause (e) where the notification inserted it.

The Income-tax Act reference. Clause (a) still refers to the Income-tax Act, 1961 and its section 139(1). The Income-tax Act, 2025 has replaced that Act from 1 April 2026, and the 1961 Act continues to govern earlier years. The last two years whose filing time has expired are, for now, years under the 1961 Act. Rule 86B has not been amended to refer to the new Act for the years that will follow.

Consequences. Rule 21(g) lists violation of rule 86B among the grounds on which registration is liable to be cancelled. Under rule 59(6)©, a person subject to rule 86B cannot furnish GSTR-1 or use the invoice furnishing facility if it has not filed GSTR-3B for the preceding tax period.

An illustration. The figures below are an illustration only.

A trader with no exception under clauses (a) to © or (e) makes taxable supplies of Rs 80 lakh in August 2026, with output tax of Rs 14,40,000. Its credit ledger holds Rs 20,00,000.
Credit may discharge at most 99 per cent of Rs 14,40,000, that is Rs 14,25,600. At least Rs 14,400 is paid from the cash ledger.
Clause (d). Suppose that from April to August 2026 its output tax totals Rs 60,00,000, including August, and that it has paid Rs 70,000 of output tax in cash over those months, counting August. Rs 70,000 exceeds one per cent of Rs 60,00,000 (Rs 60,000), so the restriction does not apply in August, and the whole liability may be met from credit. The test is applied afresh each month on the cumulative figures.

Common points of dispute

Negative blocking. Set out above; the High Courts are divided, and the Supreme Court has dismissed special leave petitions without a reasoned judgment.
Reasons. The rule requires reasons “to be recorded in writing”, and the guidelines require them on file before the order. Disputes concern whether the reasons must be communicated in full, and whether a bare entry on the portal is enough. The Andhra Pradesh High Court found the portal’s reasons in Suguna Sponge “barely pass muster”.
Blocking beyond the year, and re-blocking. The restriction lapses after a year. A fresh order after an adjudication has been allowed to stand on its facts (Creative Enterprises).
Blocking on the supplier’s default. Ground (b), tax not paid to the Government, overlaps with rule 37A.
Rule 86B’s cumulative test. Clause (d) counts cash paid “towards output tax”. Reverse charge tax is not output tax under section 2(82).

What can still be put right

A block on credit that is in fact eligible. A representation with evidence under sub-rule (2) and paragraph 3.4.1 of the guidelines, or a writ petition where the order exceeds the rule.
A block left in place after a year. The restriction ceases under sub-rule (3), and the officer can be asked to reverse the portal entry.
Credit that was in fact ineligible. It can be reversed in table 4(B)(2) of GSTR-3B or paid through DRC-03, with interest under section 50(3) on the utilised part. A demand under sections 73, 74 or 74A follows if it is not.
A month in which rule 86B was overlooked. The shortfall of cash can be paid through DRC-03 under rule 142(2). Rule 86B does not itself impose interest.

The general routes are in Correcting Mistakes in Returns and Late Returns.

The procedure in order

On an email or SMS about blocking, open the Blocked Credit Balance and note the amount, date, officer and attachment.
Compare the blocked amount with the ledger balance on the date of the order, and identify the ground relied on.
Gather evidence on that ground, and make a representation to the officer under rule 86A(2).
Note the date one year from the order. Seek reversal of the entry if the block remains after that date.
Where a demand follows, respond under the section concerned. Interest under section 50(3) arises only on credit that was utilised.
For rule 86B, test each month: taxable supplies above Rs 50 lakh, then the exceptions, including the cumulative cash test. If none applies, pay at least one per cent of output tax in cash.

The next guide covers credit claimed on the stock held when a person registers or leaves the composition scheme: FORM ITC-01.

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