Reverse Charge Mechanism Under GST- Detailed Analysis

Everyone would have heard about GST (Goods and Services Tax) and paid it too. However, what makes GST difficult to understand as a concept is its complexity and depth. There are a lot of terms associated with GST that you must comprehend to be able to find your way around it. One of the important terms is the RCM under GST (Reverse Charge Mechanism under GST). Let’s find out what it’s all about.

Notification No.	Summary
Notification No.8/2017 – Central Tax (Rate)	This notification exempts RCM under section 9(4) up to Rs. 5000 per day.
Notification No. 38/2017 – Central Tax (Rate)	This notification remove limit of rs. 5,000 up to 31 Mar 2018. i.e no RCM under section 9(4) applicable.
Notification No. 10/2018 – Central Tax (Rate)	This notification extend date of exemption to 30 June 2018.
Notification No. 12/2018 – Central Tax (Rate)	This notification extend date of exemption to 30 Sep 2018.
Notification No. 22/2018 – Central Tax (Rate)	This notification extend date to exemption to 30 Sep 2019.

Reverse Charge Mechanism Under GST

Normally, GST is paid by the supplier of goods and services upon supply. When it comes to Reverse Charge Mechanism, the receiver of goods and services has to pay the tax, which means that the tax liability is reversed.

The normal GST procedure

Supplier sells goods/services to the receiver, and the receiver pays the supplier for the same.

This payment also includes GST, which the supplier then has to pay to the government.

In case of the Reverse Charge Mechanism in GST, GST is paid by the receiver directly to the government, it does not go through the supplier and is not part of the exchange of goods/services.

Time of Supply Under Reverse Charge Mechanism (RCM)

1. Time of Supply for Goods

For reverse charge against goods, the time of supply will be the earliest of the following dates:

Date of payment

Date of receipt of goods

Date on the 30th day from the date of issue on the supplier invoice

In case where the supply date for goods cannot be determined, the time of supply will be the date of entry as stated in the books of the recipient.

2. Time of Supply for Services

For reverse charge against services, the time of supply will be the earliest of the following dates:

Date of payment

Date on the 60th day from the date of issue on the supplier invoice

In case where the supply date for services cannot be determined, the time of supply will be the date of entry as stated in the books of the recipient.

Self-Invoicing – what does it mean

When you purchase from an unregistered supplier and the purchase is applicable for the Reverse Charge Mechanism under GST, you will have to make a self-invoice. This is because the supplier can’t issue you a GST-compliant invoice, passing the burden of tax payment to you. You can easily find self-invoice formats online and use them for submission.

What are the conditions for application of Reverse Charge under GST?

Here are the situations in which a Reverse Charge Mechanism under GST is applied.

1. Supply to dealer who is registered from a dealer who is unregistered

If the vendor in a transaction isn’t registered under GST, while the person they’re selling goods/services to is, the reverse charge will apply in this situation. The receiver of goods/services will pay GST directly and make a self-invoice for the purchase.  In case of inter-state transactions, the buyer will pay IGST, while for inta-state transactions, the buyer will pay SGST and CGST under RCM.

2. Ecommerce services

If an ecommerce operator is supplying services, RCM under GST will be apply to the concerned ecommerce operator. It might happen that the operator has no physical office in the territory where tax is levied. In such a case, a representative of the operator or a person appointed to represent the operator would be liable for paying GST.

3. Supply of specific goods

As per the CBEC’s (Central Board of Indirect Taxes and Customs) rules, Reverse Charge Mechanism under GST is applicable on a specific set of goods and services. It is a long list, which you can easily find online. Some of the items in the list are:

Cashew nuts

Bidi wrapper

Tobacco leaves

Raw cotton

Lottery

PROVISIONS OF ITC REVERSAL UNDER GST

Rules 42 and 43 of CGST Rules – Input Tax Credit Reversal

Rule 42 and 43 of the CGST rules apply for claiming the input tax credit if the supply used partly for the purposes of business and partly for other purposes. To claim the input tax credit in such cases, the taxpayer should reverse the input tax credit claim if claiming the input tax credit stands nil. In this article, we look at Rules 42 and 43 of the CGST rules in detail along with the procedure for reversing input tax credit claim.

Rule 42 of CGST Rules

Manner of determination of input tax credit in respect of inputs or input services and reversal thereof.- (1) The input tax credit in respect of inputs or input services, which attract the provisions of sub-section (1) or sub-section (2) of section 17, partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall attribute to the purposes of business or for effecting taxable supplies in the following manner, namely,-

(a) the total input tax involved on inputs and input services in a tax period classified as ‘T’;

(b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended used exclusively for the purposes other than business, classified as ‘T1’;

(c) the amount of input tax, out of ‘T’, attributable to inputs and input services used exclusively for effecting exempt supplies, classified as ‘T2’;

(d) the amount of input tax, out of ‘T’, in respect of inputs and input services on which credit is not available under sub-section (5) of section 17, classified as ‘T3’;

(e) the amount of input tax credit credited to the electronic credit ledger of the registered person, shall classify as ‘C1’ and calculated as C1 = T- (T1+T2+T3);

(f) the amount of input tax credit attributable to inputs and input services intended to be used exclusively for effecting supplies other than exempted but including zero rated supplies, be denoted as ‘T4’;

(g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the invoice level in FORM GSTR-2;

(h) input tax credit left after attribution of input tax credit under clause (g) shall be called common credit, be denoted as ‘C2’ and calculated as

C2 = C1- T4;

(i) the amount of input tax credit attributable towards exempt supplies, be denoted as ‘D1’ and calculated as

D1= (E÷F) × C2

where, ‘E’ is the aggregate value of exempt supplies during the tax period, and ‘F’ is the total turnover in the State of the registered person during the tax period:

Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to be calculated;

Explanation: For the purposes of this clause, it is hereby clarified that the aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule;

(j) the amount of credit attributable to non-business purposes if common inputs and input services are used partly for business and partly for non-business purposes, be denoted as ‘D2’, and shall be equal to five per cent. of C2; and

(k) the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business and for effecting supplies other than exempted supplies but including zero rated supplies and shall be denoted as ‘C3’, where,-

C3 = C2 – (D1+D2);

(l) the taxpayer shall compute the amount ‘C3’ separately for input tax credit of central tax, State tax, Union territory tax and integrated tax; (m) the amount equal to aggregate of ‘D1’ and ‘D2’ shall add to the output tax liability of the registered person: Provided that where the amount of input tax relating to inputs or input services used partly for the purposes other than business and partly for

(m) the amount equal to the aggregate of ‘D1’ and ‘D2’ shall add to the output tax liability of the registered person: Provided that where the amount of input tax relating to inputs or input services used partly for the purposes other than business and partly for

Provided that where the amount of input tax relating to inputs or input services used partly for the purposes other than business and partly for effecting the exempt of supplies identified and segregated at the invoice level by the registered person, the same shall incorporate in ‘T1’ and ‘T2’ respectively, and the remaining amount of credit on such inputs or input services shall incorporate in ‘T4’.

(2) The input tax credit determined under sub-rule (1) shall be calculated finally for the financial year before the due date for furnishing of the return for the month of September following the end of the financial year to which such credit relates, in the manner specified in the said sub-rule and-

(a) where the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such excess shall add to the output tax liability of the registered person in the month not later than the month of September following the end of the financial year to which such credit relates and the said person should pay the interest on the said excess amount at the rate specified in sub-section (1) of section 50 for the period starting from the first day of April of the succeeding financial year till the date of payment; or

(b) where the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’. The individual can claim the excess amount as credit by the registered person in his return for a month not later than the month of September following the end of the financial year to which such credit relates.

Rule 43 of CGST Rules

Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases.- (1) Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall attribute to the purposes of business or for effecting taxable supplies in the following manner, namely,-

(a) the amount of input tax in respect of capital goods used or intended to use exclusively for non-business purposes or used or intended to use exclusively for effecting exempt supplies shall indicate in FORM GSTR-2 and shall not credit to the electronic credit ledger;

(b) the amount of input tax in respect of capital goods used or intended to use exclusively for effecting supplies other than exempted supplies but including zero-rated supplies shall indicate in FORM GSTR-2 and shall credit directly to the electronic credit ledger;

(c) the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, shall credit directly to the electronic credit ledger and the validity of the useful life of such goods shall extend upto five years from the date of the invoice for such goods: Provided that where any capital goods earlier covered under clause (a) subsequently covered under this clause, the value of ‘A’ shall arrive reducing the input tax at the rate of five percentage points for every quarter or part thereof and the amount ‘A’ shall be credited to the electronic credit ledger; Explanation.- An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause.

(d) the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for a tax period:

Provided that where any capital goods earlier covered under clause (b) is subsequently covered under clause (c), the value of ‘A’ arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value ‘Tc’;

(e) the amount of input tax credit attributable to a tax period on common capital goods during their useful life, shall denote as ‘Tm’ and calculated as

Tm= Tc÷60

(f) the amount of input tax credit, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, shall denote as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods;

(g) the amount of common credit attributable towards exempted supplies, shall denote as ‘Te’, and calculated as

Te= (E÷ F) x Tr

where, ‘E’ is the aggregate value of exempt supplies, made, during the tax period, and ‘F’ is the total turnover of the registered person during the tax period: Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to be calculated;

Explanation.- For the purposes of this clause, it is hereby clarified that the aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule;

(h) the amount Te along with the applicable interest shall, during every tax period of the useful life of the concerned capital goods, shall add to the output tax liability of the person making such claim of credit.

(2) The concerned individual shall compute the amount separately for central tax, State tax, Union territory tax and integrated tax.

Certain general situation of doubts under RCM

 What happens if the recipient needs to pay GST via Reverse Charge Mechanism but isn’t a registered dealer?

Taxpayers who need to pay via RCM under GST must be registered in the system. The important thing to note here is that the limit of ₹20 Lakhs on the annual turnover isn’t applicable to these taxpayers

Is there a provision for Input Tax Credit under the Reverse Charge Mechanism?

Tax which is paid on via RCM can be applicable for Input Tax Credit in the event that the goods/services involved are being used for a business. In this case, the receiver, or the one who pays via the Reverse Charge Mechanism under GST, is eligible to avail the Input Tax Credit (ITC).

What happens when an Input Service Distributor receives a supply liable for Reverse Charge Mechanism under GST?

An ISD (Input Service Distributor) is not allowed to make purchases that are applicable for Reverse Charge Mechanism. If they want to acquire these supplies and gain credit of the Reverse Charge paid, they must register themselves as a regular taxpayer.

How to Show RCM sales in GSTR filing?

You can declare the inward or outward supplies under RCM currently in Forms GSTR-1 & GSTR-3B.

GSTR-1 : Table 4B

GSTR-3B : Table 3.1(d)

What is Section 9(3) of GST under the CGST Act?

Section 9(3) under the CGST Act states the lists of Goods & Services that are liable to RCM under GST.

 What is the meaning of Section 9(4) of GST under  the CGST Rule?

Section 9(4) of the CGST Act states that: if a registered recipient purchases from an unregistered supplier, then it becomes the responsibility of the recipient to pay the Tax Liabilities instead of the supplier under Reverse Charge Mechanism.

Can we claim ITC on RCM in same month?

Yes, you can claim the Input Tax Credit on RCM in the same month, when you paid the GST under RCM.

How do I claim reverse charge on GSTR 3b?

Reverse Charge is not something that you claim but it is something that you pay under the Reverse Charge Mechanism.

You can declare the supplies liable to RCM in GSTR-3B & claim ITC on it.

You can declare the supplies under RCM in Table 3.1(d) of Form GSTR-3B.

How does RCM on unregistered dealer work?

RCM on unregistered dealer works as follows-

Mr. A buys goods from an unregistered supplier Mr. B. Then since the supplier is unregistered this becomes a case of Reverse Charge, & so Mr. A will pay a price exclusive of taxes.

These Taxes Mr. A will directly pay to the Government in his monthly return filings.

Now as these purchases are input for Mr. A’s business he can claim ITC on it while filing his returns & paying taxes on the finished goods

Can you explain the RCM applicability under GST?

RCM is applicable to a set of supply of goods & services specified by CBIC and to certain situations where the supplier is an unregistered person.

RCM is also applicable to supplies that are affected by e-Commerce.

How to check GST Paid by Supplier in RCM under GST?

If the GST is paid by the supplier it will not be considered a supply under RCM.

However, if you want to check if your supplier has declared the supplies & paid the GST, you can check the same in your GSTR-2A.

If you are a registered supplier & wish to see if your recipient has declared the sales under RCM, you will have to take follow up from your recipient.

What are inward supplies liable to Reverse Charge?

Inward supplies of goods or services that are either purchased from an unregistered supplier or are specified by the Government to be under Reverse Charge Mechanism are inward supplies liable to Reverse Charge for the recipient of such goods or supplies.

What are the exemptions to RCM?

There are a few cases that are exempted from Reverse Charge under GST-

• Exempted goods or services- If the goods or services are exempted from GST then the Reverse Charge would not be applicable.
• If the aggregate value of the goods & services does not exceed the amount of Rs. 5000 a day, then such transactions will be exempted from the provisions of reverse charges.

Are there some key points to keep in mind while dealing with RCM?

There are a few important points you can consider while dealing with RCM-

• Invoice management & storage- Make sure to store & properly manage the RCM invoices, as these will be useful in GSTR-1 monthly return filing as well as in GSTR-9 annual return filing
• Accurate management of accounts when there are RCM supplies in it. Precision is advised while claiming ITC on RCM supplies.
• Ensure that you pay the tax liabilities through Cash Ledger only & not Credit ledger. Although, you can receive the claimed ITC in your Credit Ledger.

18. How are services by e-commerce operators treated under RCM?

Supplies through e-Commerce are treated just like other supplies under RCM.

In this case, also the recipient of the services will pay the GST.

However, since all of the recipients of such services are unregistered people, the e-Commerce operator must hire an assess who would collect all the Taxes from such recipients & pay it to the Government.

19. How does ITC work under RCM?

ITC under RCM works just the same as it works in the regular GST System.

In the regular system, the recipient has to ensure that the supplier declares the invoices on which the recipient has to claim ITC. This does not happen in the supplies under RCM.

As the recipient is the one who pays the taxes, he can himself declare the invoices on which he wishes to claim ITC & claim the ITC for the same in the same month.

One condition applies here, the goods or supplies under RCM should be solely used for the Business purpose only.

The recipient has to discharge the Tax Liability through Electronic Cash Ledger & he can receive the Credit claimed in the Electronic Credit Ledger.

Note- Some of the information in the article has been referred from CBIC

20. How do you calculate RCM in GST?

Reverse Charge is not something to calculate in general, Reverse Charge Mechanism is a mechanism under which the recipient of the goods is liable to pay the taxes to the Government instead of the supplier of the goods.

However, here is an example for you to understand how RCM works practically-

RCM is applicable on select goods, services & supplies.

Purchase of raw cotton is liable to RCM; Mr. Abhinav purchased raw cotton for his cotton boutique from Mr. Pura worth INR 50,000.

The tax rate of cotton is 5%, meaning Mr. Abhinav needs to pay a total of INR 50,000 + 5% GST, that is INR 52,500.

But since raw cotton purchase falls under RCM he will only pay INR 50000 to Mr. Pura.

Mr. Abhinav will then have to create a self-invoice and pay the tax amount of INR 2500 directly to the Government via his GSTR-3B

The recipient in this case Mr. Abhinav will have to furnish, table 3.1 D of GSTR-3B & pay the taxes as per usual.

21. How do I pay reverse charge in GST portal?

Recipients of goods, services & supplies those are liable to RCM need to be pay the GST as per the usual tax rates, directly to the government via Form GSTR-3B.

Recipients need to furnish Table 3.1 D of GSTR-3B to pay the GST liable to RCM.

The GSTR-3B needs to be filed on the GST Portal on a monthly basis along with the RCM transaction details & the RCM taxes need to be paid using the Electronic Cash ledger only.

Taxpayers can later claim the ITC on such transactions, in table-4A of GSTR-3B of the same month.

22. Who will issue RCM invoice?

The recipient of the goods, services & supplies will issue self-made invoices for RCM transactions, irrespective of the supplier being an unregistered person.

If the supply is liable to RCM, then the recipient will have to issue the invoices for himself & declare them in their GSTR-1 & GSTR-3B.

23. RCM expenses list under GST

Following in the RCM Expense List, where Reverse Charge is applicable:

Sr. No.	Nature of Expense	Tax Rate on Expense	Is the registered supplier allowed to levy tax	Reverse Charge (If supply is unregistered)	ITC Eligibility
1	Conveyance Expense – Radio Taxi like OLA & UBER or other AC vehicle	5%	Yes	Yes	No
2	Payment to Goods Transport Agency	5%	No	Yes	Yes
3	Traveling in Train by AC or First class	5%	Yes	Yes	No
4	Job Work / Labour Charges for textile yarn & textile fabric	5%	Yes	Yes	Yes
5	Job Work / Labour Charges for diamond, jewellery & precious metal	5%	Yes	Yes	Yes
6	Job Work / Labour Charges for printing of books, journals & periodicals	5%	Yes	Yes	Yes
7	Food & Beverages Expense (Non AC restaurant)	12%	Yes	Yes	No
8	Room Rent in a hotel, lodge (Rs.1000 to 2500 per room per day	12%	Yes	Yes	Yes
9	Fuel (Furnace Oil/LPG)	18%	Yes	Yes	Yes
10	Sales Promotion/Business Promotion	18%	Yes	Yes	Yes
11	Food & Beverages Expense (AC restaurant)	18%	Yes	Yes	No
12	Mineral water	18%	Yes	Yes	Yes
13	Truck/ Tempo Hire Charges	18%	Yes	Yes	Yes
14	Club & Membership fees	18%	Yes	Yes	No
15	Advertisement Charges / Hoarding / Magazine / News Papers / Media	18%	Yes	Yes	Yes
16	AMC Charges	18%	Yes	Yes	Yes
17	Broker Fee & Charges	18%	Yes	Yes	Yes
18	Cancellation Charges	18%	Yes	Yes	Yes
19	Extended Warranty	18%	Yes	Yes	Yes
20	House Keeping Charges	18%	Yes	Yes	Yes
21	Insurance paid on goods & vehicle	18%	Yes	Yes	Yes
22	Payment to advocate	18%	No	Yes	Yes
23	Loading & Unloading – others/ Hamali	18%	Yes	Yes	Yes
24	Training Expense	18%	Yes	Yes	Yes
25	Payment to Post office for Speed post & parcel post	18%	No	Yes	Yes
26	Postage and Courier Charges	18%	Yes	Yes	Yes
27	Printing & Stationery (Flex Printing, Broad Printing, Notice Printing)	18%	Yes	Yes	Yes
28	Recruitment Expenses	18%	Yes	Yes	Yes
29	Commission Paid	18%	Yes	Yes	Yes
30	Rent Paid for commercial use of premises	18%	Yes	Yes	Yes
31	Godown Rent for commercial purpose	18%	Yes	Yes	Yes
32	Repair and Maintenance – Building / Electrical / P& M / Others	18%	Yes	Yes	Refer Note 1
33	Room Rent in a hotel, lodge (Rs.2500 to 7500 per room per day	18%	Yes	Yes	Yes
34	Payment for Sponsorship Services	18%	Yes	Yes	No
35	Security Charges	18%	Yes	Yes	Yes
36	Sundry Expenses	18%	Yes	Yes	Yes
37	Job Work / Labour Charges for garment processing	18%	Yes	Yes	Yes
38	Job Work / Labour Charges (Other)	18%	Yes	Yes	Yes
39	Sitting Fees, Commission or any other payment made to director by company	18%	Yes	Yes	Yes
40	Audit Fees, Account Writing , Professional Fees (other than Advocate)	18%	Yes	Yes	Yes
41	Research & Development Expenses	18%	Yes	Yes	Yes
42	Food & Beverages Expense (AC restaurant)	28%	Yes	Yes	No
43	Wall Paint	28%	Yes	Yes	No
44	Room Rent in a hotel, lodge Above Rs.7500/-	28%	Yes	Yes	Yes
45	Traveling Expenses International	28%	Yes	Yes	No
46	Amusement Park/ Theater Ticket	28%	Yes	Yes	Yes
47	Cold drink	40%	Yes	Yes	No
48	Repairs & maintenance Charges if it has not resulted into immovable property	18% / 28%	Yes	Yes	Yes
49	Electrical Fittings	18% / 28%	Yes	Yes	No
50	Staff Uniform Expenses	5% / 12%	Yes	Yes	Yes
51	Packing material & Packing Charges	5% / 12% / 18%	Yes	Yes	Yes
52	Plant & Machinery	Actual Rate	Yes	Yes	Refer Note 3
53	Furniture & Fixture	Actual Rate	Yes	Yes	Refer Note 3
54	Motor Car	Actual RateYes	Yes	Yes	No
55	Building	Actual Rate	Yes	Yes	No
56	Office Equipment including Computer, Software & Hardware	Actual Rate	Yes	Yesrefe	Refer Note 3
57	Free Gift given to staff (Exempt upto Rs.50000/- per staff p.a)	Applicable Rate	Yes	Yes	No
58	Free Gift given to staff (Above Rs.50000/- per staff p.a)	Applicable Rate	Yes	Yes	Yes
59	Diwali/ New year Gift purchased & debited to P & L	Applicable Rate	Yes	Yes	Yes

Following is the expense list on which RCM is not applicable-

Sr. No.	Nature of Expense	Tax Rate on Expense	Is the registered supplier allowed to levy tax	Reverse Charge (If supply is unregistered)	ITC Eligibility
1	Salary, wages & bonus paid to employee	0%	No	No	No
2	Electricity bill	0%	No	No	No
3	Water Charges/ Plain Water	0%	No	No	No
4	Bank Interest	0%	No	No	No
5	Professional Tax	0%	No	No	No
6	BMC Tax	0%	No	No	No
7	Building / Property Tax	0%	No	No	No
8	Rent Deposits	0%	No	No	No
9	Other Deposits	0%	No	No	No
10	Petrol / Diesel/ CNG/Kerosene Expenses (Motor Spirit)	0%	No	No	No
11	Liquor Expenses	0%	No	No	No
12	Registration Fees (ROF / ROC / RTO etc)	0%	No	No	No
13	Bad Debt	0%	No	No	No
14	Donation	0%	No	No	No
15	Labour Welfare Contribution to Government	0%	No	No	No
16	Fine & Penalties	0%	No	No	No
17	Conveyance Expense – Non AC Taxi, Auto, Bus, Train	0%	No	No	No
18	Loading & Unloading in relation agricultural produce/ Hamali	0%	No	No	No
19	Rent Paid for residential use	0%	No	No	No
20	Godown Rent for agricultural produce	0%	No	No	No
21	News paper & magazines	0%	No	No	No
22	Remuneration to Director & partners	0%	No	No	No
23	Bank Charges – Service charges recovered	18%	Yes	No	Yes
24	Telephone, Mobile & internet Charges	18%	Yes	No	Refer note 2
25	Health Insurance	18%	Yes	No	No

• If repair & maintenance expenses lead to the construction of immovable properties, then input credit is not available.
• If Telephone, Mobile & Internet bill is in the name of the company and address and place of business is mentioned only then should one claim the input credit on such expenses.
• Input credit is available completely. However, if goods are sold/disposed of/ scrapped/ thrown away within 5 years, then input credit @ 5% per quarter is available for the used period and balance is to be reversed for not availing full use of the good at the time of date of sale.

RCM on freight limit 750

As per Notification No. 13/2017- Central Tax dated 28/06/2017 the person who pays or is liable to paying the freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the receiver of service & thus shall be liable to paying the taxes under RCM.

This means that, if the supplier of goods (consignor) pays freight to the GTA, then the supplier will be treated as the recipient only if he belongs to the category of persons above then he will pay GST on reverse charge basis.

And if the liability of freight payment lies with the receiver of the goods (Consignee), then the receiver of goods will be treated as the receiver of transportation services only if he belongs to any of the above category of persons, he will pay GST on reverse charge basis.

 Accounting Treatment of Reverse Charge Mechanism 

Here is the simple breakdown of how the accounting treatment of RCM under GST works-

RCM charges need to be paid as per the usual tax rates, directly to the government via Form GSTR-3B. Recipients need to furnish Table 3.1 D of GSTR-3B to pay the GST liable to RCM.

Taxpayers can later claim the ITC on such transactions, in table-4A of GSTR-3B of the same month. RCM charges need to be paid using the Electronic Cash Ledger only.

However, the credit of the same can be availed & used to discharge other tax liabilities.

Accountants need to maintain a separate Ledger for RCM transactions. This ledger shall contain the RCM tax payment details as the following entries-

• CGST-Output Tax-RCM SGST-Output Tax-RCM   CGST-Input Tax-RCM SGST-Input Tax-RCM
• IGST-Output Tax-RCM IGST-Input Tax-RCM

GST RCM on foreign expenses

RCM is applicable on the import of services also known as foreign expenses.

Since the suppliers of the goods are foreign countries with different taxpayers & tax structures, they should not have to undertake the tax liability.

This will also make import & foreign exchange simpler.

Hence, as per Notification no.10/2017-IT(R) dated 28.06.2017, one of the notified category on which GST is applicable under RCM is “any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient”.

GST liability under RCM in case of Import of service has to be paid in cash/bank. GST ITC to the extent of IGST paid can be availed and utilized in the same month subject to ITC eligibility, to release the outward tax liability.

RCM under GST transport

RCM is applicable on GST Services, GTA Services are nothing but outsourced transport agencies that provide the transportation services to transport goods and issue a consignment note against the same.

RCM under GST Transportation

RCM is applicable on GTA Services or Goods & Transport Agency based services in India.  As per Notification No. 11/2017- Central Tax (Rate) dated 28th June, 2017, “goods transport agency” or GTA means any person who provides transport services for goods, by road and issues a consignment note for the services, by whatever name it’s called.

Note- Transportation Agencies that issue the consignment notes are only considered as GTA under GST

 A Factory registered under or governed by the Factories Act, 1948, A Registered Society

 A Co-Operative Society established by or under any law,  A Company,  A Partnership Firm,  Association of person, A GST registered person

Also as per Notification No. 12/2017 of Central Tax (Rate) dated 28th June 2017, the following are exempted from paying GST under RCM-

 Transport of agricultural produce

 Transport of milk, salt, food grains including rice, flour, pulses Transport of organic manure

 Transport of newspapers or magazines registered with the Registrar of   Newspapers

 Transport of relief materials for victims of natural or man-made disasters, calamities, accidents or mishaps, Transport of defence or military equipment

 Transport of any goods, where the gross amount charged for   transportation for a consignment transported in a single carriage does not   exceed INR 1,500   Transport of any goods, where consideration charged for transportation of   all such goods for a single consignee does not exceed INR 750

RCM on Labour charges under GST

RCM on Labour Charges works as per the following Table-

Sr. No	Nature of Expense	Tax Rate on Expense	Is the registered supplier allowed to levy tax	Reverse Charge (If supply is unregistered)	Input Tax Credit Eligibility
1	Labour Welfare Contribution to Government	0%	No	No	No
2	Labour Charges for textile yarn & textile fabric	5%	Yes	Yes	Yes
3	Labour Charges for diamond, jewellery & precious metal	5%	Yes	Yes	Yes
4	Labour Charges for printing of books, journals & periodicals	5%	Yes	Yes	Yes
5	Labour Charges for garment processing	18%	Yes	Yes	Yes
6	Labour Charges (Other)	18%	Yes	Yes	Yes

Reverse charge entry in Tally

Given below are the steps that you can follow on Tally to enter the Inward Supply details & Reverse Charge liable to the same-

Go to Gateway of Tally >> Inventory Info. >> Stock Items >> Alter >> and select the stock item.

On the GST applicability window

Is GST Applicable? – Select Applicable & Set/alter GST details? – Select Yes

Press F12: Configure and set “Enable reverse charge calculation?” to Yes

On the Taxability option – Select Taxable

For “Is reverse charge applicable?” Dialogue box -Select Yes .

Enter the GST rates.

Business liable to pay Reverse Charge on GTA Services

• Factory registered under the Factories Act,1948
• A society registered under the Societies Registration Act, 1860 or under any other law
• A co-operative society established under any law
• GST registered person
• A body corporate established by or under any law; or under any other law
• A partnership firm whether registered or not (including AOP)
• Casual taxable person

*****

Author Name: M.S. VIJAYAKUMAR

Qualification: M.COM. B. ED.M.B.A.M. PHIL.HDNC.,

OCCUPATION: ASSISTANT COMMISSIONER GST (RETD.)

Location:  MADURAI TAMILNADU Author can be reached in 9442022874; 8838052001; [email protected] [email protected]