REVERSE CHARGE MECHANISM UNDER GST
REVERSE CHARGE MECHANISM (RCM)
RCM refers to payment of taxes by recipient of goods or services rather than supplier of goods or services. The list of goods and services which are always liable for GST under RCM are already notified and they include transport service, supplies to Government, advocate service, supplies from unregistered dealer etc. The dangerous part of RCM is levy of GST on procurement of any taxable goods or services from unregistered persons. This could be unfair to the small suppliers and create lot of practical issues, some are listed below:
JUST REGISTERED WILL BE HIT BY RCM
A person engaged in only export of goods or services would have obtained registration for limited purpose like claim of refund though there is no output GST payable by him.
However, such registered person would also be liable for compliance under RCM on procurement of goods or services from unregistered persons. This hardship is also applicable to composition dealer also.
Following aspects shall be kept in mind as far as purchases from Unregistered Persons (URPs) are concerned:
1. Procurement from all the unregistered vendors shall be taken into account while arriving the aggregate value of such inward supplies to see whether it has crossed Rs.5000/- in any given day.
2. The liability arises both in case of goods as well as services. Hence, aggregate value shall include both.
3. Petty cash expenses such as stationery, onetime repairs etc i.e. expenses charges to P&L shall be observed to identify the liabilities for compliance.
4. Applicable GST i.e. CGST and SGST shall be discharged for all the liable cases. IGST is unlikely as it is mandatory for the persons making interstate taxable supply to get registered under GST.
CHALLENGES:
Major challenge for compliance could be identification of all taxable supplies from unregistered suppliers and applying the rate of taxes. There could be procurements such as biscuits, coffee or tea for employees, gift items, stationary items etc., all of which could be liable for GST. There could be miscellaneous services such as electrical maintenance, plumbing, carpentry etc. The Tax assesse needs to identify all such procurements and ascertain rate of taxes for payment which could be a tedious exercise. There could be lot of expenses which are incurred by the employees traveling at other places. Even these expenses need to be screened every month to discharge liability under reverse charge.
DOCUMENTATION REQUIRED:
Other than the generally applicable provisions of GST like accounting, record maintenance, payment of tax, filing returns, etc, few additional procedures have been prescribed for the RCM compliance which is over and above the other applicable procedures.
TAX INVOICE: A registered person who is liable to pay tax under reverse charge mechanism shall issue an invoice. The recipient of supply in such cases may issue a consolidated invoice at the end of a month for all the supplies made for unregistered persons having aggregate value exceeds rupees five thousand in a day from any or all the unregistered suppliers.
PAYMENT VOUCHER: As per strict interpretation of provisions, it appears that the payment vouchers have to be issued separately for each payment made to each unregistered supplier and no option is provided to issue a consolidated voucher like in case of tax invoice.
RECORDS: Every registered person shall keep and maintain an account, containing the details of tax payable including tax payable in accordance with RCM provisions, tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.
ADVERSE IMPACT OF RCM ON SMALL BUSINESSES:
Due to increased compliance, the registered persons would start avoiding procurements from small time vendors. Though this could force registration of non-compliant vendors, the genuine small vendors would suffer. Registration, complying with complicated return filing requirements could force small vendors to opt out of business. This could create employment problem as well.
Finally RCM would affect the small businesses very badly, unless government provides some relaxation by fixing threshold limit for RCM levy more
RCM refers to payment of taxes by recipient of goods or services rather than supplier of goods or services. The list of goods and services which are always liable for GST under RCM are already notified and they include transport service, supplies to Government, advocate service, supplies from unregistered dealer etc. The dangerous part of RCM is levy of GST on procurement of any taxable goods or services from unregistered persons. This could be unfair to the small suppliers and create lot of practical issues, some are listed below:
JUST REGISTERED WILL BE HIT BY RCM
A person engaged in only export of goods or services would have obtained registration for limited purpose like claim of refund though there is no output GST payable by him.
However, such registered person would also be liable for compliance under RCM on procurement of goods or services from unregistered persons. This hardship is also applicable to composition dealer also.
Following aspects shall be kept in mind as far as purchases from Unregistered Persons (URPs) are concerned:
1. Procurement from all the unregistered vendors shall be taken into account while arriving the aggregate value of such inward supplies to see whether it has crossed Rs.5000/- in any given day.
2. The liability arises both in case of goods as well as services. Hence, aggregate value shall include both.
3. Petty cash expenses such as stationery, onetime repairs etc i.e. expenses charges to P&L shall be observed to identify the liabilities for compliance.
4. Applicable GST i.e. CGST and SGST shall be discharged for all the liable cases. IGST is unlikely as it is mandatory for the persons making interstate taxable supply to get registered under GST.
CHALLENGES:
Major challenge for compliance could be identification of all taxable supplies from unregistered suppliers and applying the rate of taxes. There could be procurements such as biscuits, coffee or tea for employees, gift items, stationary items etc., all of which could be liable for GST. There could be miscellaneous services such as electrical maintenance, plumbing, carpentry etc. The Tax assesse needs to identify all such procurements and ascertain rate of taxes for payment which could be a tedious exercise. There could be lot of expenses which are incurred by the employees traveling at other places. Even these expenses need to be screened every month to discharge liability under reverse charge.
DOCUMENTATION REQUIRED:
Other than the generally applicable provisions of GST like accounting, record maintenance, payment of tax, filing returns, etc, few additional procedures have been prescribed for the RCM compliance which is over and above the other applicable procedures.
TAX INVOICE: A registered person who is liable to pay tax under reverse charge mechanism shall issue an invoice. The recipient of supply in such cases may issue a consolidated invoice at the end of a month for all the supplies made for unregistered persons having aggregate value exceeds rupees five thousand in a day from any or all the unregistered suppliers.
PAYMENT VOUCHER: As per strict interpretation of provisions, it appears that the payment vouchers have to be issued separately for each payment made to each unregistered supplier and no option is provided to issue a consolidated voucher like in case of tax invoice.
RECORDS: Every registered person shall keep and maintain an account, containing the details of tax payable including tax payable in accordance with RCM provisions, tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.
ADVERSE IMPACT OF RCM ON SMALL BUSINESSES:
Due to increased compliance, the registered persons would start avoiding procurements from small time vendors. Though this could force registration of non-compliant vendors, the genuine small vendors would suffer. Registration, complying with complicated return filing requirements could force small vendors to opt out of business. This could create employment problem as well.
Finally RCM would affect the small businesses very badly, unless government provides some relaxation by fixing threshold limit for RCM levy more
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Oct 31
GST on Advance Recieved and Advance Paid is another foolish system. Just to make system complicated only. more
Sep 08
RCM is a Bullshit Idea. Why you need reverse charge when i can ultimately claim as ITC so practically no tax paid so why this just make system complicated. more
Sep 08
I feel govt is preparing unregistered dealers/supply data and will take advantages in next step. more
Sep 08
Whole GST is a half-baked solution. This has been a complicated replacement for an already complicated ones. As time goes more & more disastrous consequences will become known same like DEMON. If I am not mistaken the system has been designed & implemented by Infosys who have made money only by body-shopping and they could not give basic correct design inputs so that the GST system could have become one consolidated Transaction Tax system eliminating all other taxes and abolishing Income Tax altogether. Present system has been made very complicated by design because no proper brains worked on it. Any questions? I have the proper solution which can solve the national problems to the core. Problem is nobody is ready to lesson. Best of luck and May God help us. more
Sep 07
Thanks Vishnuji, but problem is the newspapers don't want to entertain anything radical. You can visit my FB pages Community Centre & Affordable Housing where I am running many suggestions on relevant programmes. Looking forward to your reviews. more
Sep 08
As stated above you are having proper solution, than please publish in news paper for the sake of public. If mass public find this is right solution, they will force collectively to govt. for taking step. Regards more
Sep 08
Experience of implementation of GST:- 1) Bureaucrats have spoiled the whole system. There should not have been only two tax rates(max) & the whole coding system should be scrapped. 2) The implementation should have been scaled up gradually, instead of implementing everything ( cross checking of all transactions through net) from the inception. 3) The submission of returns should have been staggered, instead of filling everything on the same date for all class of businesses. 4) RCM is going to be a fatal system for many business houses, unless they find some dubious ways, which I am sure will be developed in course of time. 5) Did the bureaucrats had no idea about the volume of transactions that are going to be uploaded in the system? The system/server is failing every time and thus making it really a botheration for the business to comply with revised tax system. more
Sep 07
You are right. This is the so-called capability of who are supposed to be the elite among the intelligent Indians. Yes they are only as far as speech, giving excuses for non-performance and delivery of results are concerned. When it comes to practice, they falter as their theoretical concepts fall apart.
Of course there are very few exceptions and they do stand out. more
Of course there are very few exceptions and they do stand out. more
Sep 07
