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RCM Under GST

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Rishikesh
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10 views3 pages

RCM Under GST

Uploaded by

Rishikesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Reverse Charge Mechanism

Section 9(3) and 9(4) of the CGST Act, 2017 provide for levy of GST on reverse
charge basis. That is, the liability to pay tax is on the recipient of the goods and
services instead of the supplier of such goods or services, in respect of notified
categories of supply.
The Reverse Charge Mechanism is applicable in the case of:
a) Imports – B2B Import of Goods, B2B Import of Services
b) Purchase from an unregistered dealer
However, by the amendment carried out in the Act through CGST
(Amendment) Act, 2018, with effect from 01.02.2019 the RCM on purchases
from unregistered persons was made applicable to only notified persons.
Accordingly, vide Notification No. 07/2019-CT (Rate) dated 29.03.2019, the
Builders and Promoters in Real Estate have been notified as persons liable to
pay tax under reverse charge on the purchase of goods, viz., Cement and
Capital Goods, and services or both which constitute the shortfall from the
minimum value of goods or services or both required to be purchased by the
promoter for construction of project, i.e. 80% of inputs and input services
shall be purchased from the registered persons and on shortfall of purchases
tax shall be paid by the builder on reverse charge basis.
c) Supply of notified goods and services
Reverse Charge Mechanism (RCM) in GST is a system where the recipient of goods
or services is liable to pay the tax instead of the supplier.
Under the reverse charge mechanism, the liability falls on the recipient to pay the
tax amount directly to the government. This is the opposite of the forward charge
mechanism where the supplier is obligated to remit the GST to the government.
Here, the recipient is liable for the process of both self-invoicing and payment of GST
under reverse charge. In case there is any delay from the recipient side, the supplier
holds no responsibility to pay the tax.
The objective of shifting the burden of GST payments to the recipient is to widen the
scope of levy of tax on various unorganized sectors, to exempt specific classes of
suppliers, and to tax the import of services (since the supplier is based outside
India).
The recipient of goods and/or services making payment of tax under reverse charge
has to issue invoice or payment voucher on goods and/or services received from a
supplier.
Self-invoicing is to be done when purchased from an unregistered supplier, and such
purchase of goods or services falls under reverse charge. This is because your
supplier cannot issue a GST-compliant invoice to you, and thus you become liable to
pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.
Also, section 31(3)(g) states that a recipient who is liable to pay tax under section
9(3) or 9(4) shall issue a payment voucher at the time of making payment to the
supplier.
Examples of Notified Supplies Where RCM is Applicable:
1. An agriculturist sells 1000 kg Shelled Cashew Nuts to a GST registered person
@ Rs. 200/- per kg. The total value of the supply would be Rs. 2,00,000/-
As such, the liability to pay tax in this case shifts to the recipient of such
Cashew Nuts, i.e. the GST registered person. The applicable rate of tax on
Cashew Nuts is 5%. Thus, the said GST registered person will pay tax of Rs.
10000/- (Rs. 5000/- CGST + Rs. 5000/- SGST) on such goods received.
2. A trader registered under GST takes services of Goods Transport Agency
(GTA) for transportation of goods. The amount paid by the trader for
transportation is Rs. 20,000/-. Therefore, the trader has to pay tax @ 5% on
Rs. 20,000/-, i.e. Rs. 1000/- (Rs. 500/- CGST + Rs. 500/- SGST).
Imports Under GST
The Customs Tariff Act, 1975 has accordingly been amended to provide for levy of
integrated tax and the compensation cess on imported goods. Accordingly, goods
which are imported into India shall, in addition to the Basic Customs duty, be liable
to integrated tax at such rate as is leviable under the IGST Act, 2017 on a similar
article on its supply in India. Further, the value of the goods for the purpose of
levying integrated tax shall be, assessable value plus Customs Duty levied under the
Act, and any other duty chargeable on the said goods under any law for the time
being in force as an addition to, and in the same manner as, a duty of customs.

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