Reverse Charge under GST is a very important topic. There are certain goods & services which attract reverse charge. However, this is not all. As per Sec 9(4) of CGST Act, if a registered person purchases goods/services from an unregistered dealer (URD) then the registered taxpayer is liable to pay GST on reverse charge basis( only for certain goods/services & registered persons). All the provisions of the Act will apply to such recipient as if he were the person liable for paying the tax in relation to the supply of goods or services. This provision will apply if the below conditions are met:
Purchasing from Unregistered Suppliers Earlier, Purchases upto Rs. 5,000 per day from unregistered suppliers did not attract GST. In other words, there was a reverse charge on buying from unregistered dealers if you are dealing with unregistered suppliers and making payments above Rs. 5,000. This requirement has been cancelled from 1st Feb 2019 onwards.
Example: ABC Ltd. is a registered company which has spent Rs. 7,500 on purchases from a URD. Should it pay GST via RCM (Reverse Charge Mechanism) on Rs. 1,500?
The GST is payable on the entire amount of Rs. 7,500 on RCM.
Reverse Charge Mechanism (in case of supplies made by unregistered persons to registered persons) will apply, starting from 1st Feb 2019, only on specified goods/services and specified persons. The list of persons or items subject to the provisions is yet to be notified.
Earlier updates: Reverse Charge Mechanism (in case of supplies made by unregistered persons to registered persons) deferred to 30th Sept 2019. Previously, this provision was applicable from 1st Oct 2018.
Registered taxpayers will have to look into their expenses daily and analyze their P/L accounts to check whether any transactions/expenses fall under RCM. If the expenses are incurred that is covered under the notified list of supplies* then they will be required to pay GST on these transactions under RCM. *Yet to be notified as on 9th Feb 2019
Our ClearTax GST software can help you in this.
*Yet to be notified as on 9th Feb 2019
The message will read: “Please verify: There are one or more unregistered purchase invoices under reverse charge without any tax (no or 0 tax) in your data. As per GST rules you should add appropriate tax amount against such invoices before filing.”
You must remember to keep a close track of the expenses portion of your P/L account. Following is an example of some expenses which can attract GST under RCM
For these items, RCM will not apply for the simple reason that GST is not applicable on these:
If the supply involves exempted goods/services RCM will not be applicable.
1. A registered person hires an auto rickshaw for commuting from one place to another.
This section will not apply as the transportation of passenger by auto rickshaw is exempted from GST.
2. A registered person stays in a budget hotel whose tariff is Rs. 800 per day. Is GST applicable on RCM?
Since the room tariff is less than ₹1,000 it is exempted from GST. The question of RCM does not arise.
This will increase working capital, compliances, classification disputes etc. for registered businesses. Registered businesses may prefer to deal with other registered dealers only to ease business processes and reduce complications. This could hamper the business of unregistered dealers. In order to maintain market share, they might be required to voluntarily register or at least assist their registered customers in GST compliance (such as identify HSN Codes, applicable GST rates etc.)