Concept of RCM is not new in Indirect Tax regime, it is similar to what was there in service tax, but in GST regime supply of goods is also covered under RCM. There is no provision of partial RCM under GST, 100% need to be paid by receiver of service or Goods.
As per section 9 (3) of GST act The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
As per section 9 (4) of GST act In case of receipt of supply of goods or services or both by a registered person from unregistered supplier, IGST/CGST will be payable by the recipient, in respect of specified categories of goods or services as may be notified by Government on recommendation of GST Council, and all provisions of CGST Act and IGST Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both (CGST (Amendment) Act, 2018. w.e.f. 1-2-2019.)
Prior to this Amendment, such reverse charge was applicable to all supplies received from unregistered person, though this provision was kept in abeyance for the period 13-10-2017 to 30-9-2019
The Government vide Notification No. 24/2019-Central Tax (Rate) dated 30th September, 2019 amended notification No. 7/2019 – Central Tax (Rate), dated the 29th March, 2019 ; Accordingly , the builder has to pay tax under RCM on all unregistered purchase of cement irrespective of rate of GST he charges and irrespective of percentage of registered cement purchase.
Therefore, now builders has to pay the GST under RCM on unregistered cement purchase even if he is paying the GST @ 12% or the registered purchase does not fall short of 80% of total purchase.
Provisions applicable to buyer of Goods and Service under RCM-
(a) Recipient need to raise self tax invoice .
(b) Tax invoice shall contain details of Supplier of Goods or Services
(c ) Details of RCM payments need to be provided in GST Returns
(d) Tax under RCM is to be paid through Electronic cash ledger only.
SEZ unit will be liable to pay GST under reverse charge where applicable ( FAQ on GST Chapter 21 Q No. 41 issued by CBI&C on 15-12-2018)
Registration requirement for a person supplying goods /services where service recipient is liable to pay GST under reverse charge :
GST registration is not required for a person making supplies of taxable goods or services or both, where total tax is payable by recipient of goods or services are exempt from registration under GST Act ( Notification No. 5/2017-CT dated 19-6-2017).
A person is not required to pay tax under reverse charge if he is not liable for registration under GST.
Payments for Inter-state transactions under Reverse Charge Mechanism:
In case of interstate transactions supplier of service and recipient of service are in different States. It is debatable whether IGST is to be charged or CGST/SGST by the person making payment under RCM.
According to one thought – In case of reverse charge, the service recipient is only discharging the liability of supplier of service. If the supplier of service was liable to pay tax, obviously he would have paid IGST in case of interstate transaction. Considering from this angle, IGST will be payable by the service recipient under reverse charge.
However, another though is that when service recipient is paying tax under reverse charge, he enters into shoes of the supplier of service. He becomes ‘deemed supplier’. If so, the location of service recipient (who is deemed as service supplier under reverse charge) and place of supply is in same State/Union Territory and hence CGST and SGST/UTGST should apply.
While uploading the details of tax paid under reverse charge in table 4B of GSTR-1 return, the service recipient will have to prepare tax invoice in name of self. He will indicate his own State as place of supply. In that case, mostly, GSTN system may not accept the invoice if IGST is paid.
Hence, it is suggested to pay CGST and SGST/UTGST, arguing that since self invoice is prepared, the recipient of service is ‘deemed supplier’ and hence liable to pay CGST and SGST/UTGST.
If service provider is from out of India, it will be ‘import of service’ and IGST will be payable.
List of supply of goods under Reverse Charge Mechanism:
|Sl||Description of supply of Goods||Supplier of Goods||Recipient of supply|
|(a)||(i) Cashew nuts, not shelled or peeled, Bidi
(ii) wrapper leaves
(iii) (tendu), Tobacco Leave
|Agriculturist||Any registered person|
|(b)||Silk yarn||Agriculturist||Any person who manufactures silk yarn from raw silk / silk worm cocoons for supply of silk yarn|
|(c )||Supply of lottery||State Government, Union Territory or
any local authority
|Lottery distributor or selling agent|
|(d)||Used vehicles, seized and confiscated goods, old and used goods, waste and scrap||Central Government, State Government, Union territory or a local authority||Any registered person|
|(e)||Raw cotton||Agriculturist||Any registered person|
|(f)||Priority Sector Lending Certificate||Any registered person||Any registered person|
List of Services under Reverse Charge Mechanism :
An updated list of services under Reverse Charge Mechanism is available on https://taxguru.in/goods-and-service-tax/list-services-gst-payable-rcm.html.
Time of Supply of Goods & Services in case of Reverse Charge Mechanism
|Sl||RCM – Goods||RCM – Services|
|(a)||Date of receipt of goods||Date of actual payment or date of accounting of payment, whichever is earliest|
|(b)||Date of payment, as entered in books of recipient or debited in bank accounts whichever is earlier|
|Date immediately 30 days from the date of issue of invoice (whatever name it be called||Date immediately 60 days from the date of issue of invoice (whatever name it be called|
In case of import of services from associated parties, the time of supply should be earliest of:
1) Date of accounting or 2) Date of payment
Accounting Treatment of RCM Transaction ; Accounting treatment of RCM liability and tax payment shall be done in following manner :-
(a) Identify the nature of expenses
(b) Ascertain whether it is a supply of goods or services
(c ) Confirm time of tax payment & credit utilization
Accounting Ledger to be created for RCM under GST-
Separate ledger for RCM is required to be maintained. Following transactions entries need to be made in the ledger :-
Example of Accounting treatment under GST
Professional service of Rs. 1,00,000/-from XYZ & Co.who is covered under RCM under sec 9(3):-
Dated : 10/07/2019
|Professional fee A/C Dr.||1,00,000/-
|CGST – Input Tax RCM Dr.||9000/-|
|SGST – Input Tax RCM Dr.||9000/-|
|To CGST – Output Tax – RCM||9000/-|
|To SGST – Output tax – RCM||9000/-|
|To TDS on professional fee||10000/-|
|To XYZ & Co.||90000/-|
On Payment – Dated 20/08/2019
|CGST – Output Tax – RCM Dr.||9000/-|
|SGST – OutputTax – RCM Dr||9000/-|
Note: Credit of Tax paid under RCM is eligible l only after payment of tax i.e. after filing of GSTR- 3B.
(Republished with Amendments. Amendments been made by CA Anita Bhadra)