A Detailed Analysis on RCM under GST

Last Updated On: March 22, 2022, 10:52 a.m.
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A DETAILED ANALYSIS ON RCM UNDER GST

Introduction:

GST is paid by the supplier of goods and services upon supply. When it comes to Reverse Charge Mechanism, the receiver of goods and services has to pay the tax, which means that the tax liability is reversed.

The supplier sells goods/services to the receiver, and the receiver pays the supplier for the same. This payment also includes GST, which the supplier then has to pay to the government. In the case of the Reverse Charge Mechanism in GST, GST is paid by the receiver directly to the government, it does not go through the supplier and is not part of the exchange of goods/services.

 

Time of Supply Under Reverse Charge Mechanism (RCM)

1. Time of Supply for Goods:

For reverse charge against goods, the time of supply will be the earliest of the following dates:

  • Date of payment
  • Date of receipt of goods
  • Date on the 30th day from the date of issue on the supplier invoice



In case where the supply date for goods cannot be determined, the time of supply will be the date of entry as stated in the books of the recipient.

 

 

2. Time of Supply for Services:

For reverse charge against services, the time of supply will be the earliest of the following dates:

  • Date of payment
  • Date on the 60th day from the date of issue on the supplier invoice
  • In case where the supply date for services cannot be determined, the time of supply will be the date of entry as stated in the books of the recipient

Services notified under RCM for IGST/CGST/SGST purposes:

1. Goods Transport Agency (GTA) services

2. Legal services

3. Arbitral Tribunal services

4. Sponsorship services

5. Services by Central Govt., State Govt., Union Territory or Local Authority

6. Services by Director

7. Services by Insurance Agents

8. Services by Recovery Agents

9. Services by Music Composer, Photographer, Artist or the like

10. Services by Author

11. Services by Members of Overseeing Committee

12. Services by DSAs (Direct selling agents)

 

Applicability of Reverse Charge [Sec. 9(3)]:

The Govt. on the recommendations of the GST council notified the goods or services which shall be liable to tax in the hands of the recipient under reverse charge vide Notification No. 4/ 2017-Central Tax (Rate), dated 28-Jun-2017 in case of goods and Notification No. 13/ 2017-Central Tax (Rate), dated 28-Jun-2017 in case of services, as amended from time to time.

 

GOODS TRANSPORT AGENCY (GTA) SERVICES:

GTA means any person who provides service in relation to transport of goods by road and issues consignment note

 

Kindly Note: If no consignment note is issued then those services will not be covered in GTA and shall be exempt from GST. Thus, a consignment note is an essential condition to be considered as a GTA

There are 2 options available to GTA (Notification No. 22/2017-Central Tax (Rate) dated 22nd Aug 2017)

Option-1 GST Rate @ 5% without ITC Note: As per Explanation (iv) to the Notification No. 11/ 2017- Central Tax (Rate), dated 28th June 2017 –

If input goods or services are exclusively utilized for providing GTA services, the entire ITC shall be ineligible –

If input goods or services are used partly for a taxable supply and partly for GTA services then ITC in respect of GTA services shall be reversed proportionately.

 

Option-2 GST Rate @ 12% with full ITC III. GST payable under RCM on GTA services If GTA has not opted to pay tax @ 12% and providing services to any of the following categories of recipients then RCM is applicable and the recipient is liable to discharge the GST liability @ 5%

(a) Factories registered under Factories Act, 1948;

(b) Society registered under Societies Registration Act, 1860;

(c) Co-operative society established by or under any law;

(d) Any person registered GST Act;

(e) Body corporate established by or under any law;

(f) Partnership firm whether registered or not including an association of persons;

(g) Casual Taxable Person

 

How is ITC availed?

Recipient shall be eligible to avail the ITC of GST paid under RCM if used for an outward taxable supply

 

Exemption from GST in case of GTA services

GST shall be exempt if GTA services provided by way of transport in a goods carriage of (Notification No. 12/2017- Central Tax (Rate) dated 28th June. 2017 – Refer Entry no. 21 in the notification):

(a) agricultural produce;

(b) goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;

(c) goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty;

(d) milk, salt, and food grain including flour, pulses and rice;

(e) organic manure;

(f) newspaper or magazines registered with the Registrar of Newspapers;

(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents, or mishaps;

(h) defense or military types of equipment.
 

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