Princeton,Nj/ 360prwire/ November 9/
Reverse charge is a mechanism where the recipient of the goods or services is liable to pay Goods and Services Tax (GST) instead of the supplier.
What is a reverse charge mechanism?
Generally, taxes are paid by anyone who provides services but under the reverse charge mechanism, it is the recipient of services who becomes liable to pay the pax. This concept was incorporated under GST, but in the GST regime the government has notified that RCM does just imply certain services but also certain goods.
Before this there were so many problems for recipients as well as suppliers to file taxes. But now as GST comes, there are so many advantages of GST that people generally get while filing the taxes.
The main objective of RCM is to widen the levy of tax on unorganized while giving exemption to a certain class of suppliers of goods/services under section 9(3) or Section 9(4) of the CGST Act, 2017 and under sub-section (3) or sub-section (4) of Section 5 of the IGST Act, 2017.
Statutory provision of reverse mechanism
Section 2(98) of the CGST Act, 2017 has defined the term “Reverse Charge” and the same is reproduced as follows:
“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 under sub-section (3) or sub-section (4) of Section 9, or under sub-section (3) or sub-section (4) of Section 5 of the Integrated Goods and Services Tax Act.
Who should pay GST under the RCM?
As per provisions of GST law, the person supplying the goods must mention in the tax invoice whether tax is payable under the RCM.
The following points should be kept in mind while making GST payments under RCM:
- The recipient of goods or services can avail of the ITC on the tax amount paid under RCM only if such goods or services are used for business or furtherance of business.
- A composition dealer should pay tax at the normal rates and not the composition rates while discharging liability under RCM. Also, they are ineligible to claim any input tax credit of tax paid.
- GST compensation cess can apply to the tax payable or paid under the RCM.
GST registration under RCM
As per Section 24 of the CGST Act, 2017, a person who is required to pay tax under reverse charge has to compulsorily register under GST irrespective of the threshold limit of registration and threshold limit of ` 20 lakhs/` 40 lakhs (` 10 lakhs for special category States ) but special category States threshold exemption is increased to ` 20 lakhs,as per CGST (Amendment) Act, 2018 is not applicable to the Reverse Charge Mechanism. You can maintain and track all your GST records on the Lio App. It has pre-defined templates and cloud storage which helps you to take backup of all your data.
Invoicing Rules under RCM
Under RCM, either the buyer or recipient of goods or services or both have to issue an invoice or payment voucher on receipt of goods or services or both from the supplier as may be the case.
In terms of sub-section (3) of Section 31(3)(f) of the CGST Act, 2017 and read with clause (f) a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of Section 9 of the CGST Act, shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both; and as per clause (g) a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of Section 9 shall issue a payment voucher at the time of making payment to the supplier.
The second proviso to Rule 46 provides that where an invoice is required to be issued under Section 31(3)(f) of the CGST Act, a registered person may issue a consolidated invoice at the end of a month for supplies covered under Section 9(4), the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the supplies.