Reverse Charge Mechanism RCM under GST

RCM under GST

Reverse Charge Mechanism RCM under GST

Before the implementation of GST, reverse charge mechanism (RCM) was applicable only on services and there was a concept of partial reverse charge also. However, after GST implementation, there is no such concept as partial reverse charge, and reverse charge is applied on notified services as well as notified goods also.

Reverse charge means, instead of payment of tax by the supplier, the tax is paid by the recipient of supply of goods or services and all the provision of this act will apply to such recipient as if he is the person liable to pay tax.

Applicability of RCM

With regards to applicability of RCM, as per Section 9(3) of CGST Act 2017 and 5(3) of IGST Act 2017, government has notified certain goods and services on which tax will be payable on reverse charge basis by the recipient of supply of goods or services and all the provision of this act shall apply on such recipient as if he is the person liable to pay tax.

 As per Section 9(4) of CGST Act 2017 and 5(4) of IGST Act 2017, reverse charge shall apply on supply of goods or services made by an unregistered supplier to a registered recipients, and all the provision of this act shall apply to such recipient as if he is the person liable for paying tax.

For the time being, service as per Section 9(4) of CGST Act 2017 and Section 5(4) of IGST Act 2017 has been exemption by the Central Government on recommendation of the council via Notification No 8/2017 – Central Tax and Notification No. 32/2017-Integrated Tax respectively.

The list of goods & services could be found at the end of this article 

Requirement of Registration under RCM

Let’s talk about registration for the person who is engaged in supply liable to reverse charge.

It has been stated in Section 24 of the CGST Act 2017, that every person who is required to pay tax under reverse charge is required to obtain compulsory registration under this act and the benefit of slab rate of Rs 20 Lakhs/ Rs 10 lakhs is not applicable to him.

While filing the application for GST Registration, the person has to select the Reason to obtain Registration as “Liability to pay tax as recipient of goods or services u/s 9(3) or 9(4)”

Where any supplier is exclusively engaged in supply of goods or services or both which is liable to reverse charge, he is not liable to get registered as per the power given in Section 23(2) of CGST Act 2017.

Time of Supply under RCM

Now, the question arises, when the liability to pay GST under reverse charge arises. For this, provisions related to “time of supply” are relevant. Different provision has been made in respect of goods and services.

For Goods:

As per section 12(3) of CGST Act 2017, the time of supply shall be

  • Date of Receipt of goods

OR

  • Date of payment (which means date of payment in the books of accounts or date of debit in the bank account, whichever is earlier)

OR

  • The date immediately succeeding the period of 30 days from the date of issue of invoice or any other document, in lieu thereof, by the supplier

Whichever is earlier.

And where it is not possible to determine time of supply as per the above provision, then the time of supply shall be the date of entry in the books of accounts of the recipient of supply.

For Services:

As per section 13(3) of CGST Act 2017, the time of supply shall be

  • Date of payment (which means date of payment in the books of accounts or date of debit in the bank account, whichever is earlier)

OR

  • The date immediately succeeding the period of 60 days from the date of issue of invoice or any other document, in lieu thereof, by the supplier

Whichever is earlier.

And where it is not possible to determine time of supply as per the above provision, then the time of supply shall be the date of entry in the books of accounts of the recipient of supply.

Filing returns and eligibility to claim Input tax credit 

When GST return is filed for any particular month, the person who is liable to pay tax under reverse charge is not allowed to take credit of input tax against such liability and shall pay full tax payable under reverse charge by way of debiting the electronic cash ledger maintained on GST portal. The tax under reverse charge once paid can be availed as input tax credit in the return for next month subject to eligibility (Subject to provisions of section 17(5) of CGST Act 2017).

During the filing of GSTR 3B, only the amount of tax paid under reverse charge has to be mentioned. However when GSTR 1 is filed, Invoice wise details are to be furnished in respect of all the supplies on which reverse charge is attracted and has to be separately shown in Table 4B.

Compliance requirements

There are various compliance requirements which are required to be fulfilled. First of all, the most important document under GST Law, which is invoice. Invoice is the backbone of GST because everything can be tracked through invoice.

While preparing a tax invoice, it should be mentioned in the tax invoice as to whether the supply is liable to reverse charge or not. It also applies to the receipt voucher as well as refund voucher. This requirement has been made in section 31 of the CGST Act 2017 read with Rule 46 of the CGST Rules 2017.

Every taxable person is required to maintain records of all the supplies on which reverse charge is applicable.

List of goods & services

In exercise of the power conferred by section 9(3) of CGST Act 2017 and section 5(3) of IGST Act 2017, government has notified following goods and services on which reverse charge is applicable.

GOODS: Goods has been notified under Notification No. 4/2017– Central Tax (Rate) on which reverse charge is applicable.

  • Supply of cashew nuts, not shelled or peeled, bidi wrapper leaves, tobacco leaves supplied by an agriculturist to any registered person
  • Supply of silk yarn to a registered person who manufactures silk yarn from raw silk or silk worm cocoons.
  • Supply of lottery by State Government, Union territory or any local authority to Lottery distributor or selling agent.

Used Vehicles, seized and confiscated goods, old and used goods, waste and scrap by Central government, State government, union territory or a local authority to any registered person.

SERVICES: Services has been notified under Notification No. 13/2017– Central Tax (Rate) on which reverse charge is applicable.

As per notification 10/2017 – Integrated tax: following additional services are also liable to reverse charge

  • Any service provided to a person located in taxable territory (other than non-taxable online recipient) by any person located in non-taxable territory
  • Service by way of transportation of goods by a vessel by a person location in non-taxable territory to an importer, from a place outside India up to the custom station of clearance in India.

 

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