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Reverse-Charge-Mechanism-under-GST-(RCM)

 

Reverse Charge Mechanism under GST (RCM)

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See related posts : List of Revised GST Tax Rates

Introduction-

Tax means GST which is charged on goods/ services supplied, always it is paid by the supplier against supplies of goods & services, but in certain cases the buyer has to pay GST under reverse charge on purchase of goods/supplies. This type of GST paid by the buyer is called Reverse charge mechanism. Under reverse charge mechanism, GST is payable on the supply of goods or services or both from unregistered supplier to a registered supplier

 

The following cases when reverse charge is mandatory –

1. Supply from unregistered dealer to a registered dealer-

Under reverse charge mechanism, GST is payable on the supply of goods or services or both from unregistered supplier to a registered supplier. If any person who is not registered under GST Act, but supplies goods/services to those persons who are registered dealer, then GST has to be paid by the registered buyer against such supplies of goods/services instead of supplier.

Purchases up to Rs. 5,000 per day from unregistered suppliers will not attract GST.  It attract on buying from unregistered dealers and making payments above Rs. 5,000.

Under reverse charge mechanism the buyer has to generate self-invoice for purchases and to pay GST.

 

Example 1- M/s ABC & company (Registered dealer) has purchased the goods from M/s SYG Alloys (Unregistered dealer) amounting to Rs 10,000. Under reverse charge mechanism who will be liable to pay GST?

Answer-

Under reverse charge mechanism M/s ABC & Company will be liable to pay GST on purchase of Rs. 10,000.


Example 2- M/s ABC & company (Registered dealer) has purchased the goods from M/s SYG Alloys (Unregistered dealer) amounting to Rs 10,000. Should it pay GST under Reverse Charge Mechanism on the whole amount or the amount exceeding the threshold limit?

Answer-

When the limit of Rs 5,000 in a day is crossed, the GST is payable on the entire amount of Rs 10,000

 

Latest update as on 6th Aug 2018, Reverse Charge Mechanism (in case of supplies made by unregistered persons to registered persons) deferred to 30th Sept 2019.
   
2. Services through an E-commerce operator-

An e-commerce operator supplies services, the reverse charge will be applicable to the e-commerce operator and he will be liable to pay GST on such services.

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 will appoint a representative who will be held liable to pay GST.

 

Example 3- M/s XYZ & company (E-commerce operator) provides services of plumbers, electricians etc. to customers. Who will be liable to pay tax under reverse charge mechanism?

Answer- M/s XYZ & Company is liable to pay GST and collect it from the customers.

 

3. Other notified goods/services by CBEC-

There is a list of goods/services which are notified by CBEC is as follows, on which the recipient has to be paid tax under reverse charge mechanism –

 

Items of Profit & Loss which attract GST under RCM-

  • Advertisement
  • Audit Fees
  • Business promotion expenses
  • Computer maintenance
  • Commission payments
  • Consultancy Fees
  • Freight and transportation expenses (GTA)
  • Gift expenses
  • Legal Fees
  • Office Maintenance
  • Printing and stationery
  • Professional Fees
  • Rent
  • Repairs and Maintenance
  • Vehicle maintenance

Items of Profit & Loss which does not attract GST under RCM-

  • Car fuel (Diesel/petrol)
  • Electricity
  • Government Fees (MCA fees, land registration fees etc.).
  • Interest
  • Salary and wages
 
Time of Supply under Reverse Charge- When the supplier is located outside India then, time of supply shall be the earlier of the Date of the entry in the books of account of the receiver or date of the payment.
 

A. Time of Supply in case of Goods-

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • Date of receipt of goods
  • Date of payment*
  • Date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

 

B. Time of Supply in case of Services

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • Date of receipt of services
  • Date of payment
  • Date immediately after 60 days from the date of issue of invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

 
Example 4- (In case of Supply of Goods)-
  1. Date of receipt of goods 10.06.2018
  2. Date of payment 15.07.2018
  3. Date of invoice 01.07.2018
  4. Date of entry in books of receiver 01.07.2018

What will be date in case of time of supply?

Answer-

The Time of supply of goods, will be 10.06.2018 (earliest of the above)

 

Example 5- (In case of Supply of services)-
  1. Date of receipt of services 10.06.2018
  2. Date of payment 15.07.2018
  3. Date of invoice 01.07.2018
  4. Date of entry in books is 01.07.2018’

What will be date in case of time of supply?

Answer-

The Time of supply of service, in this case, will be 10.06.2018

 



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