Benefits of availing inward supplies form an Un-registered Person under GST: by CA. Mithun Khatry

Applicability of Reverse Charge Mechanism is undoubtedly the most discussed topic under GST nowadays. More than 60 percent queries on GST are related to this Reverse Charge Mechanism. Registered Persons are asking their clients for their GSTIN numbers. Consultants are advising their clients to stop dealing with persons who are not registered under GST. Reverse Charge Mechanism under GST is facing lots of criticism among the business fraternity. However every coin has another side, this RCM too is not an exception. There are some benefits of RCM also. Demerits and problems of applicability of RCM has been discussed in various articles at many platforms, in this article we will discuss only positive aspects of paying tax under Reverse Charge Mechanism and benefits of availing inward supplies from un-registered persons.

First thing we must understand that, we have to pay GST on every taxable supply irrespective of the fact that whether such supply is eligible for input tax credit or not. In case tax paid on a particular inward supply is eligible as Input Tax Credit, then paying tax under RCM though may require additional working capital requirement as tax has to be paid in cash till 20th of the succeeding month, however once tax is paid under RCM, we don’t have to worry about the mismatch of this tax paid with the Sales details of the supplier as we are depositing this tax by ourselves.

Also in case payment to an unregistered vendor is not made within 180 days, then you don’t have to reverse the Tax Credit of GST paid under RCM. So in this way you may plan your working capital requirements also.

Also there is daily limit of Rs. 5000/- in case of aggregate of inward supplies from all unregistered persons in a day. So you may also plan to avail daily supplies within the range of Rs. 5000/- per day from un-registered person on which input tax credit in not available.[except for cases covered under section 9(3)]

So, under many circumstances, paying tax under Reverse charge mechanism may also prove to be beneficial to the registered person.

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This article includes general information about legal issues and developments in the proposed law of GST in India. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances.

We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.

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December 2020