The government's decision on mandatory payment of at least 1 percent of GST tax liability in cash will only apply to establishments having an annual turnover of Rs 6 crore and the new rule will not apply to micro and small businesses, and composition dealers, finance ministry sources said on Sunday.

 Based on the recommendations of the GST Law Committee, the government has notified new indirect tax rules that make cash payment of 1 percent of GST tax liability mandatory for businesses whose taxable supply value exceeds Rs 50 lakh in a month. This change will come into effect from January 1, 2021. The new rules stoked fears that the mandatory cash payment will adversely affect small businesses and will increase their working capital requirement.

"Contrary to what is being fed, the new rule will only help to curb the menace of fake ITC availment and impact only risky and suspicious dealers or fly-by-night operators. It will in no way disturb honest taxpayers," said one of the sources quoted above. Apart from the turnover based exemption, the cash payment rule will also not apply in the cases the registered person deposited more than Rs 1 lakh as Income Tax in each of the last two years and where such person has received a refund of more than Rs 1 lakh in the preceding financial year on account of export or inverted tax structure. Also, the cash rule is not applicable to government department, PSU and local authority.

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