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“Clarifying GST’s RCM on purchases from unregistered persons: Explore the evolution of Section 9(4) CGST Act from 2017 to present, exemptions, and specific notifications for a clear understanding.”

Though it has been more than 5 years of completion of GST and government has left no stone unturned to celebrate the successful implementation of the same, yet there is a lot of confusions and doubts prevailing in the market not only among the registered dealers but to professional as well and not to say, GST officers as well.

This article has an objective to clarify all the myths and doubts related to REVERSE CHARGE MECHANISM (RCM) Liability on purchase of goods and services from unregistered persons. The guiding section in this matter is Section 9(4) of CGST Act,2017. The section has been elaborated by 6 notifications and the section has been altered altogether once by CGST (Amendment) Act,2018. The list of such notifications have been reproduced at the end of this article.

Our discussion will be summarized as per various timelines to give a better sense of understanding:

1. 01st July,2017 to 12th October,2017

A registered person was liable to pay tax on Reverse Charge Mechanism on each purchase of goods or service from unregistered person.

However, exemption from such RCM was given if total value of such purchases (aggregate from all unregistered persons) in a day is Rs. 5000 or less.

For instance, if total purchases from unregistered persons in a day is Rs. 4999, then no RCM applicable but if such purchases aggregates to Rs. 5001, then RCM applicable on entire Rs. 5001.

(Notification No-08/2017, Central tax (Rate) dated 28th June,2017)

2. 13th October,2017 to 31st January,2019

The exemption from RCM on purchase from unregistered persons was extended without the capping of Rs. 5000. Thus, if a registered dealer purchase goods or services worth Rs. 50,000 (aggregate) from unregistered persons, RCM is not applicable.

This interpretation is drawn from joint reading of following Notifications:

Notification No.38/2017-Central Tax (Rate) dated 13.10.2017

Notification No.10/2018-Central Tax (Rate) dated 23.03.2018

Notification No.12/2018-Central Tax (Rate) dated 29.06.2018

Notification No.22/2018-Central Tax (Rate) dated 06.08.2018

3. 01st February,2019 till Date (Feb,2023)

The Act was entirely reworded through CGST (Amendment) Act,2018 and was effective w.e.f. 01.02.2019. Accordingly, RCM Provisions on purchases from unregistered persons was applicable only on the class of persons to be notified in the future. Hence the temporary blanket exemption from RCM Provisions on such purchases was made permanent through the amendment.

Only one notification since then have been notified to specify Promoters and Builders under this section.

Notification No.07/2019-Central Tax (Rate) dated 29.03.2019

(Broadly cement and capital goods purchased from unregistered persons in Real Estate Project and shortfall in purchases from registered persons from 80% benchmark- A detailed article will be uploaded in this regard in coming days).

Hence the pandora box on RCM Liability on purchases from unregistered seems to be contained and taxpayers have been provided the big relief. However, a lot of confusion and litigations is expected in coming days for such transactions entered from 01st July,2017 to 12th October,2017.

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Disclaimer: The information contained in this document is intended solely for dissemination of information and doesn’t aim at soliciting work in any manner. Though meticulous care has been taken but the author assumes no liability in respect of any loss/damage incurred while acting on the basis of information provided. The above framework has been developed by the author after researching since long time and a proprietary intellectual property of the author.

The author can be reached at AKSHAY.AKAC@GMAIL.COM and can be called at +91-7011503210.

Author Bio

I, CA AKSHAY AGGARWAL, am a Qualified and Practicing Chartered Account and having key interest and expertise in Direct and Indirect taxes. Apart from Chartered Accountancy, my interest in financial markets have persuaded me to persue and clear all the three levels of CFA (USA). I believe my expertis View Full Profile

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21 Comments

  1. RANJIT GHOSH says:

    The amount of Rs. 50,000 in Para 2 above is just an instance. Purchase of any amount (say 5 lacs or 50 lacs etc.) from unregistered person is NOT LIABLE to RCM.

    WILL YOU PLEASE PROVIDE ANY NOTIFICATION NUMBER

  2. Rengamannar Ramachandran says:

    What is the limit of purchase from URD by a RD, being a construction contract company, for not to apply RCM, Is it Rs 5000 or 50000 ?.

  3. JITHIN says:

    If you are received service from GTA (Goods Transport Agency) then RCM applicable for the service if they(GTA) are Registered or Unregistered..!

  4. sunny kumar says:

    i’m a wholesale dealer of readymade cloth items, most of time i have to phurchase goods from unregistered person and as well from registered person. i have both items in my stock mixed up with and i’m registered with normal scheme dealer so i have to issue tax invoices as well to our customers.
    So my question is can i issue tax invoice repect to my all items well have in my stock purchase with registered or unregistered as well?

  5. SANATAN NAYAK says:

    if a registered dealer pay towards sales promotion or business promotion from unregistered dealer is it exempted from rcm?

  6. Atul Goyal says:

    please clarify that even today the purchase from unregistered person by the registered person is exempt from rcm with out limit

    1. JITHIN says:

      If you are received service from GTA(Goods Transport Agency) then RCM applicable for the service wether he(GTA) is Registered or Unregistered..!

  7. akshay.akac says:

    The amount of Rs. 50,000 in Para 2 above is just an instance. Purchase of any amount (say 5 lacs or 50 lacs etc.) from unregistered person is NOT LIABLE to RCM.

    (Thanks Bharat bhushan ji for bringing such cofusion/dilemma in notice)

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