URD Expenses within five thousand a day; Keeps RCM away!

CA Umesh Sharma

Arjuna (Fictional Character): Krishna, In GST, there is concept of Reverse charge. This concept was there in service tax also. So, what is exact Reverse Charge Mechanism?

Krishna (Fictional Character): Arjuna, Reverse Charge means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both. Generally, liability to pay tax at the time of supply of goods or services or both is of supplier. But if supplier is not registered, then the liability transfers to receiver and he has to pay tax on goods or services or both purchased on reverse charge basis.

Arjuna: Krishna, if the receiver has paid tax in reverse charge, will he get the input tax credit of tax paid by reverse charge?

Krishna: Arjuna, as the registered person get input tax credit of specified inward supply, similarly he will get the input tax credit of tax paid by reverse charge subject to conditions. But if that taxpayer is registered under composition scheme then he is not eligible to take input tax credit of tax paid under reverse charge.

Arjuna: Krishna, to whom the reverse charge is applicable and what are the exceptions to that?

Krishna: Arjuna, reverse charge mechanism is applicable on taxable supplies for rent, commission, Printing and stationery, repairs, office and vehicle maintenance, legal fees, audit fees, labour charges, consultancy and professional fees, transportation cost, business promotion expenses, advertisement etc. But for salary and wages, electricity, interest, government dues and car fuel reverse charge mechanism does not apply.

Arjuna: Krishna, there is limit of Rs. 5000 for reverse charge. Give information about that in brief.

Krishna: Arjuna, Government has issued a notification on 28^th June regarding this. In the notification it is given that, there is no need to pay tax under reverse charge if the total value of inward supply of goods or services or both from unregistered dealer in one day is not exceeding Rs. 5000. This notification has been applicable from 1^st July, 2017. For ex.- If any person receives goods or services like tea of Rs. 500, stationery of Rs. 3000, transportation of Rs. 1000 from all or any unregistered dealers in one day, then he is not liable to pay tax under reverse charge. Because total value of inward supply is less than Rs. 5000

Arjuna: Krishna, What if that limit of Rs. 5000 is crossed?

Krishna: Arjuna, if the total value of inward supply of goods or services or both from all or any unregistered dealer in one day exceeds Rs. 5000 then receiver has to pay tax under reverse charge on total value. For ex.- If any person receives goods or services like office and vehicle maintenance of Rs. 3000, rent of Rs. 2000, commission of Rs. 700 and gifts of Rs. 800 from all or any unregistered dealers in one day, then he is  liable to pay tax under reverse charge on total value of Rs. 6500

Arjuna: Krishna, What will happen if any registered person does not pay tax on reverse charge of purchases from unregistered dealer?

Krishna: Arjuna, It is given in central goods and service tax act, that if receiver is liable to pay tax under reverse charge then all the provisions of act which are applicable to taxable person will be applicable to that receiver like penalty, interest etc.

Arjuna: Krishna, what lesson the taxpayer should take from this?

Krishna: Arjuna, Reverse charge mechanism means burden of others on our head. It means avoid the purchases from unregistered dealer. Because of GST, new pledge is borned, “India is my country. All Indians are my brothers and sisters. To pay the tax of unregistered brother is my duty under GST regime.” In medical line it is said that, An apple a day; keeps a doctor away!” Similarly, now in GST it will be said that,” URD Expenses within five thousand a day, keeps RCM away!”

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