How to Reverse Charge Mechanism Transactions in GST Returns?

“Navigate the complexities of Reverse Charge Mechanism (RCM) transactions in GST returns with this comprehensive guide. Understand the reporting procedures for both suppliers and recipients, ensuring accurate filing and reconciliation. Learn step-by-step details for reporting RCM transactions in GSTR-1, GSTR-3B, and GSTR-9 for suppliers. Discover how recipients can leverage GSTR-2B to identify eligible Input Tax Credit (ITC) and report it in GSTR-3B. Follow these guidelines for precise compliance with GST regulations and seamless return filing.”

The process of filing GST returns and reporting transactions involving supplies attracting GST under reverse charge  provisions can be confusing for stakeholders. It is important to understand the concept of reverse charge mechanism (RCM) under GST and follow the correct procedures for reporting RCM transactions in various GST returns. In this guide, we will walk you through the steps involved in reporting RCM transactions for both suppliers and recipients, ensuring accurate filing and reconciliation of returns.

Before moving forward, we should first quickly revise the concept of RCM under GST.

Under the reverse charge mechanism:

Section 9(3) applies in the case of notified goods and services.

or,

Section 9(4) applies in the case of the supply of taxable goods and services by an unregistered supplier to a registered recipient.

GST shall be paid by the recipient of goods and services.

1. Reporting of RCM transactions in various GST returns by the supplier

Let us first focus on the supplier of goods and services (the supplier being the registered supplier of notified goods and services under section 9(3)).

1) Reporting of RCM transactions in GSTR-1

The first return that the supplier is required to file is GSTR-1.

Outward supply attracting reverse charge is to be reported under Table 4 – B2B invoices.

Do not forget to tick the box of “Supply attracting reverse charge”.

Mention the taxable value of supply in the respective tax rate row, and the applicable amount of GST (IGST, CGST, SGST) will automatically show as applicable to the supply.

Do not try to mention the supply under the 0% tax rate. It will defeat the purpose of introducing the auto-fill procedure at different stages by the GST department.

2) Reporting of RCM transactions in  GSTR-3B

When you, as a supplier, go on to file GSTR-3B, you will see the entire value of taxable supply, including supplies attracting reverse charge, auto-populated under the head “Taxable outward supplies (Other than zero-rated, nil-rated, and exempted)” under Table-3.

But don’t worry! And do not edit the auto-populated figure of the value of taxable supply. You need not report the RCM invoice under “Other outward supply (Nil rated, exempted)”.

Your GST liability (IGST, CGST, SGST), also auto-populated, will not include GST to be paid by the recipient under RCM. The system will automatically exclude that tax based on the fact that you have checked the box “Supply attracting reverse charge” while filing those invoices under GSTR-1.

Pay or adjust ITC on the tax you are liable to pay, and you are good to go.

3) Reporting of RCM transactions GSTR-9

Many advise and practice reporting RCM invoices under the 0% GST rate just to reconcile GSTR-3B and GSTR-1 and the books of account, which is a wrong practice.

By following the correct practice as detailed above, your GSTR-9 will also be automatically reconciled.

Your taxable value of supply on which forward charge is applicable, i.e., on which tax was to be paid by you, the supplier, will be auto-populated under Table-4 of GSTR-9 – Details of advances, inward and outward supplies made during the financial year on which tax is payable, Point (B): Supply made to a registered person (B2B), along with the IGST, CGST, SGST amount.

The RCM supply made by you will be auto-populated in Table 5: Details of Outward supplies made during the financial year on which tax is not payable under Point (C) Supplies on which tax is to be paid by the recipient on a reverse charge basis. The columns for IGST, CGST, SGST will be inactive in Table-5.

2. Reporting of RCM transactions in various GST returns by the recipient

Now that the supplier has filed all his returns, how should a recipient show the inward supplies attracting reverse charge provision in his returns?

1) Reporting of RCM transactions in GSTR-1

No reporting required for RCM transactions in GSTR-1 by recipient

2) Reporting of RCM transactions GSTR-2B

It is a new static auto-drafted ITC statement. It shows the eligible and ineligible input tax credit and will remain unchanged. It is auto-drafted based on the GSTR-1 being filed by the suppliers. It shows document-wise details of Input tax credit and whether the same is eligible or not.

The benefits of GSTR-2B include:

• GST is correctly paid on inward supplies attracting reverse charge.
• The statement indicates the respective tables or columns of GSTR-3B under which the input tax credit of an invoice/debit note must be taken.

How to access GSTR-2B:

• Go to Return Dashboard —– Select the month you want to file a return for —— On the next page, you can see GSTR-2B.

Form GSTR-2B has two tabs: SUMMARY and ALL TABLES.

ALL TABLES are further divided into two sections: ITC available and ITC not available.

Under the tab ITC Available – Part A Section III, Inward Supplies Liable for reverse charge – B2B, you can see your eligible ITC along with directions as to where the same supply should be reported while filing the GSTR-3B form.

GSTR-3B:

• Table 3(d) Inward supplies liable to reverse charge – Auto-populated from GSTR-2B.
• Table 4A(3) – ITC eligible – Auto-populated from GSTR-2B.
• Table 6.1 Payment of taxes: RCM tax liability to be adjusted only with the electronic cash ledger balance. You can claim ITC on such RCM supplies against tax liability on other outward taxable supplies.

As we can see from the above discussion, once the supplier has correctly reported the RCM supplies in his GSTR-1, no edits are required anywhere by anyone manually. All the figures will appear auto-populated.

However, for the purpose of Section 9(4) where the reverse charge liability falls on the recipient when the supplier is unregistered, the recipient will be required to calculate the tax liability manually and report the same in GSTR-3B, Table 3(d), Table 4A(3), and Table 6.1. GSTR-2B would not show any ITC availability on the same as the unregistered supplier was not required to file GSTR-1.

Conclusion:

Accurate reporting of RCM transactions is crucial for complying with GST regulations and ensuring proper reconciliation of returns. By following the guidelines outlined in this guide, suppliers can correctly report RCM supplies in their GSTR-1, GSTR-3B, and GSTR-9 returns. Recipients, on the other hand, should rely on the GSTR-2B statement to identify eligible input tax credit and report it in their GSTR-3B return. By understanding and adhering to these procedures, stakeholders can navigate the complexities of GST returns and maintain compliance with the reverse charge provisions.