The reverse charge mechanism (RCM) is applicable for specific services notified under the GST Act. Under the reverse charge mechanism, the recipient has to pay tax but both the supplier and recipient must report RCM supplies.
Let’s see how a supplier and recipient report supplies subject to a reverse charge under the old return system and how they have to report under the upcoming new return system.
- Under the old return filing system
- Under the new return filing system
- Comparison – old vs new GST return system
- Actions to be taken by the taxpayers
1. Under the old return filing system
The supplier has to report invoice-wise sales subject to RCM in his GSTR-1. The supplier has to report the same in table 4B of GSTR-1 (Outward supplies attracting tax on reverse charge basis).
The recipient has to report the summary of purchases attracting reverse charge. The recipient has to report in Table 3.1 (D) of GSTR-3B (inward supplies liable to reverse charge). The recipient has to discharge the liability through electronic cash ledger while filing his GSTR-3B.
The recipient can utilise ITC on purchases under RCM only in the next tax period. He can claim it under Table 4A of GSTR-3B (eligible ITC).
2. Under the new return filing system
The supplier has to report the summary sales subject to RCM in GST RET-1. He has to report outward RCM supplies under Table 3D of GST RET-1 (details of supplies having no liability). There is no need to report sales subject to RCM in GST RET-2 and GST RET-3.
The recipient has to report invoice-wise purchases attracting reverse charge in GST ANX-1. He has to report this in Table 3H of GST ANX-1 (inward supplies attracting reverse charge). The inward RCM supplies reported by the recipient will be auto-populated to Table 3B of GST RET-1 (details of inward supplies attracting reverse charge) from GST ANX-1. The recipient has to discharge his liability through electronic cash ledger while filing his GST RET-1/PMT-08/RET-2/RET-3 as the case may be.
The credit on RCM purchases will be auto-populated to Table 4A of recipient’s GST RET-1 (details of ITC based on auto-population from FORM GST ANX-1).
3. Comparison – old vs new GST return system
Under the upcoming new return system, the positions of supplier and recipient are going to be swapped for reporting RCM supplies. The responsibility of invoice-wise reporting of RCM supplies is going to be shifted from the supplier to recipient. The responsibility of reporting of summary of RCM supplies shifts from the recipient to the supplier. The reason for this change is due to the nature of ANX-1. It now requires the reporting of those supplies where tax liability and discharge falls upon the shoulders of the taxpayers when compared to the GSTR-1.
The responsibility of tax payment and the benefit of ITC lies with the recipient only under both old and new return systems.
4. Actions to be taken by the taxpayers
The value and tax on RCM supplies will be auto-populated from GST ANX-1 to GST RET-1/ RET-2/RET-3. The recipient has to discharge liability and he can claim ITC based on the auto-populated figures. The recipient should hence be careful while reporting invoice-wise inward RCM supplies. Any delay can have interest implications.