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 not any 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. (List of services under RCM is notified by GST council on meeting held on dt 19th May, 2017. List produce at the end of this article.)
As per section 9 (4) of GST act The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient 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.
Conclusion of above reading, one set of tax liability under RCM is where GST council provide list of services for RCM and under section 9(4), if we purchase goods or service from unregistered dealer, then we need to pay tax under RCM and issue self-invoice for receiving supply of Goods as well as service.
Provision applicable to buyer of Goods and Service under RCM-
1) Issue a tax invoice on self
2) Details of Supplier of Goods or Services
3) Details need to be provide in monthly return-Outward as well inwards
4) Calculating of tax and required the same paid through Electronic cash ledger
When we pay under RCM, it’s our obligation to fulfill compliance as if the same supply of service or sale of goods is by us.
When tax should charge under RCM-
In case of RCM, the time of supply is earliest of:
|1||Date of receipt of goods||Date of actual payment or date of accounting of payment, whichever is earliest|
|2||Date of payment, as entered in books of recipient or debited in bank accounts, whichever is earlier|
|3||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
Now the question raises of accounting treatment and setoff of tax paid under RCM, for that below treatment is required
- We need to first identify nature of expenses
- Credit supply of service or supply of goods
- Treatment of tax paid and utilized credit of tax paid (after payment / in next month)
Accounting Ledger to be create for RCM-
Separate ledger for RCM is required to identify from normal ledger under GST.
- CGST-Output Tax-RCM
- SGST-Output Tax-RCM
- CGST-Input Tax-RCM
- SGST-Input Tax-RCM
- IGST-Output Tax-RCM
- IGST-Input Tax-RCM
Example of Accounting treatment as above:-
Professional service of Rs. 1,00,000/-from XYZ & Co.an unregistered supplier on dt.10/07/2017
Note: Credit of Tax paid under RCM will get only after payment of tax i.e. after filing of GSTR-3.
List of services on which tax is to be paid under Reverse Charge Mechanism
- Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessee online recipient (OIDAR)
- Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road
- Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly
- Services provided or agreed to be provided by an arbitral tribunal
- Sponsorship services
- Services provided or agreed to be provided by Government or local authority excluding, –
- renting of immovable property, and
- services specified below-
- services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;
- services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
- Transport of goods or passengers.
- Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate;
- Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business
- Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company
- Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India
- Transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works
- Radio taxi or Passenger Transport Services provided through electronic commerce operator