Majority of Business Expenses are liable for tax under Reverse Charge Mechanism (RCM) in GST. Even though liability to pay tax under RCM is in the hands of service receiver under GST, in practice such registered dealers are collecting tax from the service provider while making payments to them. Here the registered dealer under GST who is liable to pay RCM assigning the tax liability under GST to the small service provider. Ex:- Bankers are collecting 10% TDS Income-tax & 18% GST total 28% from pigmy agents on commission paid, who are struggling to meet their livelihood. This is a clear case to show that Indian GST is a DRACONIAN law.

Attached below the details of Business Expenses liable for tax with particulars of rates under Goods and Service Tax Act of India. I am of the strong view that such Business Expenses should not be subject to Tax Deduction at Source once again under Indian Income-Tax Act. Therefore, TDS provision as applicable to Business Expenses list furnished in the enclosed attachment, no longer required in the statute book of Indian Income-Tax Act.

TDS is required to be made on whole value of such Business Expenses incurred by the assesse under Income-Tax Act. Further, GST on Business Expenses under Reverse Charge Mechanism resulting in one more Tax Deduction at Source in GST as explained above. Therefore, CBDT should withdraw TDS Provision under Income-Tax Act on such Business Expenses liable for RCM under GST to avoid future complication & also to up hold constitutional validity of TDS Provision under Income-Tax Act.

GST Business Expenses.pdf

———————

B.S.K.RAOB.S.K.RAO, Tax Advocate, BDKRAO, Beside SBI, Tilak Nagar, Shimoga-577201, Karnataka State

Mo.No. : 9035089036

E-Mail : raoshimoga@gmail.com

Click here to Read Other Articles of B.S.K.RAO

Click here to Know About GST Certification Course

More Under Goods and Services Tax

Posted Under

Category : Goods and Services Tax (5358)
Type : Articles (15002)
Tags : Advocate B.S.K.RAO (10) goods and services tax (3901) GST (3493)

18 responses to “RCM Resulting in TDS Provision Under GST-Unconstitutional !”

  1. BSKRAO says:

    *REMEMBER MY FELLOW TAX PROFESSIONALS*

    It’s only 30% complication faced by TPs, real complication starts when other three forms are activated for uploading. It is not surprising to predict that your family members may starts shouting at you for not taking concern in their issues or my runaway from you.

    Indian citizens are fooled in the guise of good & simple tax, in fact India GST law is bad & highly complicated tax. Already there are several tax laws in India which are interpreted in different ways due to complications & are still pending for final judicial interpretation. Now GST is above all. Govt must relook immediately for its simplification to suit all whether industry or small traders.

    *B.S.K.RAO*, B.Com, LL.B, MICA,
    Auditor & Tax Advocate,
    BDKRAO, Beside SBI,
    Tilak Nagar, Shimoga-577201,
    Karnataka State, INDIA.

    Mo : 0-9035089036
    E-Mail : raoshimoga@gmail.com

  2. BSKRAO says:

    *INDIA GST IS NEITHER ASSESSEE FRIENDLY NOR TAX PROFESSIONALS FRIENDLY LAW AND ITS IMPLEMENTATION IS LIKE POLICE ENCOUNTER ON BUSINESS ENTERPRISE – TAX SHOULD BE COLLECTED LIKE PLUCKING FLOWER FROM THE PLANT, THEN ONLY IT IS CALLED GOOD & SIMPLE TAX SYSTEM AS PER CANNONS OF TAXATION*

    GST in present form is the most complex law as compared to GST Laws prevailing in other nations. Another draconian & complicated law going to trouble Indian assesses. GST in present form is not one nation & one tax or good & simple tax as promoted by our central Govt. When separate GST for each States of India has been proposed with constitutional powers to levy tax at the discretion of each State, how come it is one nation & one tax. In proposed GST Law of India, major Receipts & Payments of business enterprise are liable for GST and the balance Profit is liable for Income-Tax. Ultimatley, nothing left to the business man & everything eaten away by Govt. in the form of tax. Yahi hi achha din, enjoy it business man of India. In fact, Modi Govt. is fooling the whole public & assesses. Govt. wants the dealer to keep on indulging in compliance round the year is clear from return filing compliance procedure prescribed in GST. This is not expected by the Govt. Our learned Revenue Secretary Mr.Hasmukh Adia Sab, is misguiding whole of India in his speech.

    I always think in the angle of practical approach and decide pros & cons of any new tax system. Any one objecting me, should keep in mind that separate GST for each state with multiple rates of tax plus tax under RCM that too charging the same in the bill separately as SGST and CGST is not one tax & one nation and good & simple tax. Rather INDIA GST is highly complicated & not compliance friendly law. Strenuous efforts of learned officials in Ministry of Finance, Govt. of India to make the Indian GST law highly complicated has been appreciated by PM heading our nation is a catastrophic situation.

    RCM on Business Expenses under GST is a big blow on poor & middle class Indian citizens, as it is paid out of their pocket, when deducted by service receiver in their payments. Hence, RCM on Business Expenses under GST is nothing but tax on Income of other person & take the footing of Direct Tax, requiring the Govt. to delete Income-tax Act. *Ex:- Bankers are deducting 10% IT TDS & 18% RCM under GST against payments made to Pigmy Agents as Commission.*

    To sum-up, present form of INDIA GST LAW is not compliance friendly, but one of the highly complicated & worst GST LAW in the world. Our Central Govt. is troubling & misleading the public at large.

    *Big News*

    Government recover 42000 Crore Rupees as First month GST Collection.??

    *FACT*
    The fact is out of this 42000 Crore *20000 Crore is IGST Collection*

    As we know *IGST is washout Tax* and our 100% about 85% will be refunded in term of Credit against IGST/ SGST/CGST or UTGST.

    That means we *actually have Collection of about 20 to 25000 Crore.*

    That comes to *yearly 3,00,000 Crore* *_ONLY_* just _equivalent to last year ServiceTax Budgeted Target_ which is about 2,95,000 Crore.

    Then what about the other *Central Tax like CST, Excise, CVD, SAD & States’ Income ?*

    Do NEW INDIA is *out of income?*

    Does our all *businesses fussed up because of GST?*

    Does the people of India *don’t understand Good and Simple Tax?*

    Does system of implementation of GST is not proper and that turns whole *thoughts of good governance aside* ?

    B.S.K.RAO, B.Com, LL.B, MICA,
    Auditor & Tax Advocate,
    BDKRAO, Beside SBI,
    Tilak Nagar, Shimoga-577201,
    Karnataka State, INDIA.

    Mo : 0-9035089036
    E-Mail : raoshimoga@gmail.com

  3. Tax.Adv.B.S.K.Rao says:

    Today, I got a call from my client who is providing professional service U/s 194J to construction company stating that:-

    Either, my client should provide GST Number to avoid deduction of RCM under GST against his payment or he should agree from deduction of RCM tax under GST out of his payment. Our Central Govt. is not sensitive enough to understand the gravity RCM problem in GST troubling poor & medium class citizens of India. Instead, our Govt. in mum on this issue.

  4. Adv.BSKRAO says:

    RCM on Business Expenses will result in Direct Tax and a big blow on poor & middle class citizens of India. Ex:- Take the case of pigmy agents, bankers will deduct 10% TDS Income-Tax & 18% RCM under GST total 28% against their payments. (Even though the charge is on the banker to pay RCM under GST). This is because, there is no required output tax payable by the banker to adjust this 18% RCM paid under GST. Hence RCM under GST results in one more Direct Tax on poor & medium class which can not be claimed back.

  5. Adv.BSKRAO says:

    I am objecting two aspects in INDIA GST. One is RCM on Business Expenses which are also subject to TDS under Incom-Tax Act & the other collecting GST under two heads ie, SGST & CGST. Here problem arises when each state fix different rate in their budget. It may happen so because such powers given to each state in SGST. Each state may exercise such powers in their budget. Ie, in course of time INDIAN GST will become higly complicated than VAT or Sales Tax.

  6. Adv.BSKRAO says:

    I am objecting two aspects in INDIA GST. One is RCM on Business Expenses & the other collecting GST under two heads ie, SGST & CGST. Here problem arises when each state fix different rate in their budget. It may happen so because such powers given to each state in SGST. Each state may exercise such powers in their budget. Ie, in course of time INDIAN GST will become higly complicated than VAT or Sales Tax.

  7. Adv.BSKRAO says:

    GST – COMPOSITION SCHEME? IS IT HEADING FOR A DISASTER IN GST REGIME?

    My take understands that out of 8 lakhs registration applications filed, only 100,000 tax payers have applied for composition scheme. It was supposed to be a good and simple scheme and the small traders and notified service providers should have welcomed. But it did not seem to have happened. Why? The reasons are clear – enormous limitations prescribed under Section 10 and to further complicate Rule 3 to Rule 7 of CGST Rules were prescribed. How can businessmen in India even comprehend such complicated conditions – virtually the law made them a local street vendor? How do you integrate such traders in the mainstay of GST Regime? Let the GST Council and the Government take a call and ensure that such traders are integrated into the GST Regime to enjoy the One Nation One Market USP so highly publicized by the Government. There is no way such conditions as prescribed under Section 10 read with long Rules 3 to Rule 7 can be satisfied. Even if people apply for such, I am sure, they will face wrath of litigation in times to come. Revenue officers will implement the law and there should be no heartburn then. GST Law should have simplified such schemes rather than created such an atrocious conditional scheme that even lawyers will find it difficult to understand. Let the Government take a view.
    SV

  8. SADASHIV VAZE says:

    You have not understood the mechanism of reverse charge. The supplier of services should not pay the tax but it should be borne by the receiver. the act is not wrong. but the interpretation made by bank is wrong. Please make case against the bank that they are wrongfully deducting the commission to pay the GST. If the bank is doing wrong then bank should be penalised and not the provision in the Act be changed. The mentality of bankers should be changed and ased them not to deduct GST from the Pigmy collectors who are not registered with GST.

  9. SREEDHARA PARTHASARATHY says:

    Changes in the Mechanism under GST:

    Following major changes could be observed in the Reverse charge mechanism under GST vis a vis the system under earlier indirect tax laws:
    1

    1.No concept of Joint Charge Mechanism (as on date). i.e. in case of all the specified supplies, the recipient of supply alone liable to pay the GST and not jointly with the supplier.

    2.The RCM is made applicable for both goods as well as services.

    3.Separate provision introduced to impose the liability to pay GST when the goods and services received by a registered person from any persons who are not registered under GST. [Sec 9(4) of the CGST/SGST Act].
    Relaxation given for procurements not exceeding Rs.5000/- in a day.

    The list of services on which RCM is applicable is reduced under GST compared to the service tax law. i.e. few of the services covered under reverse charge earlier are now under forward charge and the vice versa.

    • Tax.Adv.B.S.K.Rao says:

      Sreedhara Parthasarathy Sir, earlier to GST regime, businessman are not required to pay tax on Business Expenses either under Service Tax or under VAT, then how come you say now RCM has been relaxed in GST. Because of this whole Receipts & Payments of Business Enterprises are under the ambit of GST and balance profit liable for Income-Tax. This is the crux of the matter.

  10. SREEDHARA PARTHASARATHY says:

    Following could be few reasons behind the idea of Reverse Charge Mechanism:
    To enable small entrepreneurs to develop without hassles in early days and later they would grow and contribute to exchequer.
    To avoid loss of revenue from grey (unbilled, under billed) unorganised sector, To avoid compliance complications to the small players.
    To tax every transaction though specified persons are exempted to pay tax due to small scale exemption, To avoid difficulties in monitoring/assessing persons from unorganised sector.
    To provide a level playing field between the tax compliant and the non-compliant, also between service providers outside India and those in India.

  11. Tax.Adv.B.S.K.Rao says:

    I always think in the angle of practical approach and decide pros & cons of any new tax system. Any one objecting me should keep in mind that separate GST for each state with multiple rates of tax plus tax under RCM that too charging the same in the bill separately as SGST and CGST is not one tax & one nation and good & simple tax. Rather INDIA GST is highly complicated & not compliance friendly law. Strenuous efforts of learned officials in Ministry of Finance, Govt. of India to make the Indian GST law highly complicated has been appreciated by PM heading our nation is a catastrophic situation.

  12. SADASHIV VAZE says:

    It is wrongful to say that GST act has authorised to deduct GST from the commission of Poor pigmy agents. banks are wrongly advised to deduct GST. Banks have to pay the GST amount on Pigmy collectors a/c and claim the Input tax credit on the amount .THIS PROVISION IS PURPOSELY MADE SO THAT THE gst COLLECTED BY THE BANK SHOULD NOT BE BURDEN TO BANK NOR TO THE PIGMY COLLECTOR..

    • Tax.Adv.B.S.K.Rao says:

      Thanks for Comments Vaze Sab,
      Sir, I am explaining what is happening practically now in the matter. This may be followed by other dealers. As a matter of concern Govt. should take necessary steps in the matter. Only solutions is that Govt. should withdraw RCM under GST to avoid greate injustice happening to poor & middle class people. When the Govt. is getting GST on all receipts from registered dealer, why RCM again pay tax & claim ITC. If situation prevail as said in the article, the very purpose of Rs 20 Lakhs exemption limit finds no meaning. I am in favour of RCM withdrawal as many Business Expenditures also liable for TDS under Income-Tax Act to avoid burden on poor & middle class people.and also to avoid future litigations & complications under GST. Further, such tax collected by the service receiver can not be claimed back like TDS under Income-Tax Act. When Govt. is getting GST on all receipts, Govt. should withdraw RCM on Business Expenditure under GST Act. If not such RCM tax collected while making payments to them amounts to one more kind of Direct Tax levied on poor & middle class people which is not permissible. Our Central Govt. should give practical approach while framing any policies.

      • Tax.Adv.B.S.K.Rao says:

        Vaze sab,

        Further, I have not said that GST Act has authorised to deduct GST from commission payable to poor pigmy agents. I have said that it is happening on date. Ek chor bach sakte hai but court should not punish person who has not committed any offence in reality. Govt. should think about negative impact of RCM and withdraw it. Even if Govt. prescribe penalty for wrongful action, in practice the deal may conclude in cash. This has to be kept in mind by the Govt.

        • Tax.Adv.B.S.K.Rao says:

          Aginst commission of Rs 1,000/- at a streach Rs 280/- ie. 28% will be deducted by the service receiver from Commission agents. The sum represents Rs 100/- TDS Income-Tax & Rs 180/- GST. Even to claim refund of Rs 100/- TDS Income-Tax he has to file return within 12 months (earlier it was 24 months) on paying Tax Professionals fees. Rs 180/- deducted as GST can not be claimed back in any circumstances, resulting in one more Direct Tax to the Commission Agent.

          • Tax.Adv.B.S.K.Rao says:

            VERY PURPOSE OF INTRODUCING GST IS TO COVER ALL RECEIPTS FROM SALE & SUPPLY OF GOODS & SERVICES RESPECTIVELY WITHIN THE AMBIT OF INDIRECT TAX, BUT IT SHOULD NOT RESULT IN ONE MORE DIRECT TAX ON THE ASSESSEE IN PRACTICE. WHICH IS HAPPENING NOW.

  13. Adv.BSKRAO says:

    I always think in the angle of practical approach and decide pro’s & cons of any new tax system. Any one objecting me, agree that GST for each state with multiple rates & RCM that too splitting in the bill as SGST and CGST is a one tax & one nation and good & simple fax ? I will not agree, rather INDIA GST LAW is highly complicated & not compliance friendly. Strenuous efforts of learned officials in Ministry of Finance, Govt. of India to make the Indian GST law highly complicated has been appreciated by PM heading our nation is a catastrophic situation

    RCM on Business Expenses under GST is a big blow on poor & middle class Indian citizens, as it is paid out of their pocket, when deducted by service receiver in their payments. Hence, RCM on Business Expenses under GST is nothing but tax on Income of other person & take the footing of Direct Tax, requiring the Govt. to delete Income-tax Act.

Leave a Reply

Your email address will not be published. Required fields are marked *