Reverse Charge Mechanism (RCM) under GST : A Complete Analysis

Reverse Charge Mechanism (RCM) under GST : A Complete Analysis : As we all must be aware of this fact that GST is normally charged by Supplier of Goods/Services. But there are some cases where the Recipientwill be liable to pay GST instead of Supplier. This structure of charging GST is called Reverse Charge Mechanism (RCM).Now Let's Understand it step by step:

Reverse Charge Mechanism (RCM) under GST : A Complete Analysis

A. When is RCM applicable There are following cases when charging GST on reverse charge basis are mandatory: (i). Supply from an Unregistered dealer to a Registered dealer If a vendor who is not registered under GST, supplies goods to a person who isregistered under GST, then Reverse Charge would apply. This means that theGST will have to be paid directly by the receiverto the Government instead of the supplier. Thisis a case wherethe conceptof Self Invoicingcame into being.The registered dealer who has to pay GST under reverse charge has todo self-invoicing for the purchases made. [Announcement dated6th Aug 2018 :RCM (in case of supplies made by unregistered persons to registered persons) deferred to 30th Sept 2019. Previously, this provision was applicable from 1st Oct 2018.] (ii). Services through an e-commerce operator If an e-commerce operator supplies services thenthe reversecharge will be applicable to the e-commerce operator. He will be liable to pay GST. For example, Ola provides services of transportation of Passenger through Radio Taxis. Then Ola has to pay GST on behalf of actual service provider i.e. Driver. If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator shall appoint a representative who will be held liable to pay GST. (iii). Services (including OIDAR) provided by Supplier in Non-Taxable Territory to Any Business Entity in Taxable Territory. (iv). Other Notified Goods and Services By CBIC: There are various Goods and Services which are notified by CBIC which will be covered under RCM. Those are provided as follows: Notified Goods for RCM: -Cashew nuts, not shelled or peeled, -Bidi wrapper leaves (tendu), -Tobacco leaves, -Silk yarn, -Raw Cotton, -Supply of lottery, -Used vehicles, seized and confiscated goods, old and used goods, waste and scrap, -Priority Sector Lending Certificate Notified Services for RCM: -Services byGoods transportation Agency (GTA) -Services Provided byAdvocatesto Business Entity -Services Provided byArbitral Tribunalto Business entity -Sponsorship serviceto any Body corporate/Firm -Services provided ByCentral Govt./State Govt./UT/Local Authorityto Business Entity -Services provided byDirectorof a Company -Services Provided byInsurance Agents -Services Provided byRecovery Agentsto a Banking co./NBFC -Supply of services by anauthor, music composer, photographer, artistor the like tos to a publisher, music company, producer or the like. -Supply of services by themembers of Overseeing Committeeto RBI. [For Detailed Information check out the official Notification: Click here to download the CBIC E Flyer The Time of Supply (TOS) in case of RCM: TOS is considered as the point in time when the Goods/Services would be considered as Supplied and consequently liability for GST would arise. The TOS in case of RCM would be as follows:

In case of GOODS

In case of Services

The TOS would be Earliest of the following: the date ofReceiptof goods the date ofPayment* the date immediatelyafter30daysfrom the date of issue of aninvoiceby the supplier {not from Self Invoicing} If it is not possible to determine the TOS by the above, the time of supply shall be thedate of entryin the books of account of therecipient. *This point is no more applicable based thisNotification No. 66/2017 Central Taxissued on 15.11.2017

The TOS shall be theearliestof the following dates: The date ofPayment The date immediatelyafter60daysfrom the date of issue ofan invoiceby the supplier {not from Self Invoicing} If it is not possible to determine the TOS by the above, the time of supply shall be thedate of entryin the books of account of therecipient.

Some Important Points: *Is Input Tax Credit allowed under RCM If yes, then on what document Tax paid on RCM basis will be available for the input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit on basis of Self Invoice made by Recipient. *What if an Input Service Distributor receives supplies liable to Reverse Charge An ISD cannot make purchases liable to Reverse Charge. If the ISD wants to procure such supplies and take the Reverse Charge paid as credit, the ISD should register as a Normal Taxpayer. *What if the receiver of goods and/or services who is required to pay tax under RCM himself an Unregistered Dealer All taxpayers required to pay tax under reverse chargehave toregister for GST and the threshold of Rs 20 Lakhs/10Lakhs is not applicable to them. In case of any ideas, Suggestions or queries, please do comment below. You can follow my blogs @taxeffects.blogspot.com and also reach me at [email protected]. Thanks. Be Helpful to One Another!