Paying Tax
How the money actually moves
How the money moves, and what you cannot pay with ITC.
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GST runs on three ledgers. The credit ledger holds input tax credit. The cash ledger holds money you have actually deposited. The liability ledger records what you owe. Payment is simply the act of moving from the first two into the third.
The rule that surprises people: credit can only pay output tax. Interest, penalty and late fee must come from cash, no matter how large your credit balance. A business can be sitting on lakhs of unused credit and still have to find cash for a ₹5,000 late fee.
Rule 86B adds a further restriction for larger businesses: if your monthly taxable supply exceeds ₹50 lakh, at least 1% of the liability must be paid in cash, unless you fall within one of the exceptions.
Worked example
Why a business with credit still had to find cash
| Unused input tax credit balance | ₹4,20,000 | Sitting in the credit ledger |
| Output tax for the month | ₹3,10,000 | Fully paid from credit |
| Interest and late fee for a delayed return | ₹18,400 | Must be paid in cash |
₹1.1 lakh of credit left over, and the business still had to deposit ₹18,400 in cash. Credit and cash are not interchangeable, and treating them as if they are is how businesses miss deadlines.
The mistakes that cost people money
Not theoretical risks — the ones we actually see land on clients’ desks.
Budgeting interest and penalty against your credit balance. They are cash-only, always.
Missing Rule 86B in a month where taxable supply crossed ₹50 lakh, when the previous months were below it. The rule is tested month by month.
Paying under the wrong head. Money in the cash ledger under CGST cannot simply be used for SGST without a formal transfer.
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Paying Tax — the complete guide
9 pages covering all 18 provisions, with the plain-language explanation and practice notes for each. Print it, keep it, share it with your accountant.
Common questions on this
Straight answers to what people actually ask us.
Interest Rate for Late GST Payment
Late GST payment attracts 18% annual interest normally — but 24% specifically applies to wrongly availed and u…
Can You Pay GST Interest and Penalty from Input Tax Credit?
No — interest, penalty, and late fee must be paid in cash. ITC in your credit ledger can only be used against …
What Is Rule 86B — the 1% Mandatory Cash Payment Rule?
Rule 86B caps ITC usage at 99% of output tax for larger taxable suppliers, forcing at least 1% cash payment — …
Every provision on paying tax
All 18 of them, each with a plain-language explanation and the full legal text.
CGST Rules, 2017 · 10
CGST Act, 2017 · 8
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