Reverse Charge Mechanism Under GST

Dear Viewers

Today I am sharing such a important topic under goods and service tax i.e. RCM (Reverse Charge Mechanism) will be applicable again on 1^st July 2018 which has been postponed until 30 June 2018.

Reverse Charge Mechanism is a very important topic. There are certain goods & services attract reverse charge. 

As per Sec 9(4) of CGST Act, if a registered person purchases goods/services from an unregistered dealer (URD) then the registered taxpayer is liable to pay GST on reverse charge basis. All the provisions of the Act will apply to such recipient as if he were the person liable for paying the tax in relation to the supply of goods or services.
This provision will apply if the below conditions are met:


1. Supply of Taxable goods or service
2. Supply must be by an unregistered person
3. Supply to be registered person.
4 Supply must be an intra-state supply as compulsory registration is required for inter-state sales

Purchasing from Unregistered person suppliers

Purchase upto 5000/- per day from Unregistered Suppliers will not attract GST. Reverse charge on buying from unregistered dealers if you are dealing with unregistered suppliers and making payments above Rs. 5,000.

What is the process of paying tax via RCM on purchases from URDs?

You will be required to fill up all the correct HSN codes for the goods and services that fall under RCM. 

Upload invoice details on our software. While uploading invoices, you can select whether RCM is applicable or not.

Our software will read your invoices. If you cross the threshold of Rs. 5,000, you will get an alert message saying that your aggregate purchases from URDs have exceeded Rs. 5,000.

What are the Profit & Loss items which might attract GST under RCM?

You must remember to keep a close track of the expenses portion of your P/L account. Following is an example of some expenses which can attract GST under RCM-

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

Exceptions

For these items, RCM will not apply for the simple reason that GST is not applicable on these:

• Salary and wages
• Electricity
• Interest
• Car fuel (Diesel/petrol)
• Government Fees (such as MCA fees, land registration fees etc.)

Exempted Goods and RCM

If the supply involves exempted goods/services RCM will not be applicable.
Examples:

1.      A registered person hires auto rickshaw for commuting from one place to another. 

This section will not apply as the transportation of passenger by auto rickshaw is exempted from GST.

2.      A registered person stays in a budget hotel whose tariff is Rs. 800 per day. Is GST applicable on RCM?

    Detailed Report of RCM on various expenses debited to Profit and Loss A/c is as follows:-

Sr No	Particulars of Expenses	Applicablity of GST	Rate of GST	ITC Avail-ablity for Front Charge	RCM if From URD	RCM ITC	Remarks
1	Wages	Not Applicable					Employer Employee relationship
2	Salary	Not Applicable					Employer Employee relationship
3	Fuel Expenses for Vehicle	Not Applicable					Petroleum Products not covered under GST
4	Interest Paid	Not Applicable					Except where paid to Creditors for Goods purchased or Services received
5	Depreciation	Not Applicable
6	Bad Debts	Not Applicable
7	Loss Due to theft/Fire	Not Applicable					Corresponding ITC on purchase of material destroyed by fire theft natural calamity free sample etc needs to be reduced.
8	Electricity Expenses	Not Applicable
9	Remuneration to Partners	Not Applicable					As per clarification issued.
10	Profession Tax	Not Applicable
11	Municipal Taxes	Not Applicable
12	ESIC Payments	Not Applicable
13	Discount shown in Bills	Not Applicable
14	Food to Staff Entertainment Expenses	Applicable	Various	No	Yes	No	12% in case of non air-conditioned hotels and 18% in Air conditioned Hotels (Applicable to take away and delivery) Incase of small roadside vendors and unregistered Hotels RCM will be applicable No Input Tax Credit is available on Food and Beverages
15	Conference and Seminar Expenses	Applicable	18%	Partly Yes Refer Remarks	Yes	Partly Yes Refer Remarks	Tax on Rent of the venue i.e. Banquet Will be available as ITC. Tax on Food and Beverages will not be available. It is advisable to have separate bills for rent and Food.
16	Printing and Stationery	Applicable	12% and 18%	Yes	Yes	Yes	Incase of Tax Paid on stationery and Photocopy expenses ITC is available. A diary system with local stationery shop can be maintained and monthly billing can be done for convenience.
17	Travelling Expenses
17a	Train Tickets	Applicable	5% for First Class/III Tier Ac	No			Since railways are currently not updating GSTIN on system the ITC will not be available.
17b	Flight Tickets	Applicable	5% Economy Class	Yes	Yes	Yes	Obtain a copy of Invoice from airline company. All airline companies have started customer updation programms please update your GSTIN with airline companies.
17c	Hotel Accommodation Charges	Applicable	18%/ 28%	Partly Yes Refer Remarks	Yes	Partly Yes Refer Remarks	Tax charged on Accommodation in the same state i.e. In case where the recipient and the hotel are in same state ITC will be available. In case of Hotels outside the state where GST registration is not there than ITC may not be allowed. Tariff up to Rs 999/: 0% Tax. From 1001 to 2499 Rs 12% Tax From 2500 to 7499 Tax@ 18%. And 7500 and above tax rate will be 28%.
17d	Taxi Services such as Tourist vehicle	Applicable	18%	No	Yes		Such Services are in negative list
18	Conveyance
18a	BEST Bus NMDC TMC Bus Etc	Exemption		No	No	No
18b	Auto Rickshaw Metered Taxi Kali Pili	Exemption		No	No	No
18c	Train Pass	Applicable	5% in Case of I Class	No	No	No	Since railways are currently not updating GSTIN on system the ITC will not be available.
18d	Ola/Uber Radio Taxi	Applicable	5%	No	Yes	No	Generally bills are sent on mail which should be properly recorded in books of accounts.
19	Courier Charges	Applicable	18%	Yes	Yes	Yes
20	Repairs to Machinery	Applicable	Various	Yes	Yes	Yes
21	Repairs to Land and Building	Applicable	Various	No Refer Remarks	Yes	No Refer remarks	If repairs are to immovable property than ITC is not available.
22	Insurance Premium Paid	Applicable	18%	Partly Yes Refer Remarks	Yes	Yes	ITC Available except Life and Medical Insurance.
23	Telephone Expenses	Applicable	18%	Yes Refer Remarks	Yes	Yes	ITC available provided connection in name of business entity claiming ITC and GSTIN of Business entity mentioned on Bill.
24	Accounts Writing Charges	Applicable	18%	Yes	Yes	Yes	Generally such part time accountants are unregistered and hence will attract RCM and ITC will be available.
25	Transport Charges Like Tempo etc.	Applicable	Exempt	No	No	No	Transport Charges are exempt from GST except GTA. Hence booking of private tempo or any other carriage for transport of goods where consignment note is not issued will be exempted.
25a	GTA (Compulsory RCM) [Sec 9(3)]	Applicable	5%	NA	Compulsory RCM 5%	Yes	Compulsory reverse charge is applicable on GTA Services @ 5%. Full ITC is available. Charges to the extent of Rs 750 for multiple carriage and Rs 1500/: for exclusive single carriage is exempt and hence no RCM on such services. GTA means a person who provides service in relation to transport of goods by road and issues consignment note by whatever name called.
25b	Hamali Loading Unloading	Applicable	18%	Yes	Yes	Yes	Majority of Hamali Charges are URD and hence RCM Effect will be there. Set off of tax paid on RCM will be available.
25c	Weighment Charges	Applicable	18%	Yes	Yes	Yes
25d	Packing Expenses (Labour)	Applicable	18%	Yes	Yes	Yes
26	Packing Expenses (Material)	Applicable	Various	Yes	Yes	Yes
27	Legal Expenses (Paid to Advocate or Advocate Firm) [Sec 9(3)]	Applicable	18%	NA	Compulsory RCM 18%	Yes	Compulsory reverse charge for payment made to advocate or advocate firm. Full ITC of tax paid on RCM is available
28	Testing Charges	Applicable	18%	Yes	Yes	Yes
29	Labour Charges	Applicable	18%	Yes	Yes	Yes
30	Business Promotion Expenses	Applicable	Various	Yes (Refer Note)	Yes	Yes	In case of free gifts sample etc Input Tax Credit will not be available.
31	Professional Fees (Other than Advocate Fee)	Applicable	Various	Yes	Yes	Yes
32	Internet Charges	Applicable	18%	Yes	Yes	Yes
23	Computer Expenses	Applicable	18%	Yes	Yes	Yes
24	Court fee Paid	Not Applicable		No	No	No
25	ROC Fee	Not Applicable		No	No	No
26	Security Charges	Applicable	18%	Yes	Yes	Yes
27	Site Expenses	Applicable	Various	Yes	Yes	Yes	Site Expenses needs to be categorised properly in different heads. This expenses generally have high quantum of non invoice and URD Purchases and is very important for RCM
							if after categorizing site expenses few expenses pertaining to food beverages etc are found than ITC will not be available.
28	Bank Charges	Applicable	18%	Yes	Yes	Yes
29	Bank Guarantee Charges	Applicable	18%	Yes	Yes	Yes
30	Profession Tax	Not Applicable
31	Rent	Applicable	18%	Yes	Yes	Yes
32	Storage and Warehousing	Applicable	18%	Yes	Yes	Yes
33	Office Expenses	Applicable	Various	Yes(Refer Note)	Yes	Yes	Office Expenses needs to be categorized properly in different heads. This expenses generally have high quantum of non invoice and URD Purchases and is very important for RCM if after categorizing site expenses few expenses pertaining to food beverages etc are found than ITC will not be available.
34	Staff Welfare	Applicable	Various	Yes (Refer Note)	Yes	Yes	Staff Welfare needs to be categorized properly in different heads. This expenses generally have high quantum of non invoice and URD Purchases and is very important for RCM if after categorizing staff welfare expenses few expenses pertaining to food beverages etc are found than ITC will not be available.
35	Auditors Fee	Applicable	18%	Yes	Yes	Yes
36	Subscription	Applicable	18%	Yes	Yes	Yes
37	Membership Expenses	Applicable	18%	Yes	Yes	Yes
38	Commission and Brokerage	Applicable	18%	Yes	Yes	Yes	It is a high risk expense chance of URD RCM is more often than not.
39	Liaison Work	Applicable	18%	Yes	Yes	Yes	It is a high risk expense chance of URD RCM is more often than not.
40	Liquidated Damages	Applicable	18%	Yes	Yes	Yes
41	Exhibition Expenses	Applicable	18%	Yes	Yes	Yes
42	Interest paid to Creditors for Taxable Goods/Taxable Service	Applicable	Rate of ser/goods	Yes	Yes	Yes
43	Advertisement	Applicable	18%	Yes	Yes	Yes
44	Motor car Purchase/Rental	Applicable	28% + Cess	No	Yes	No	Motor car is in blocked credit list. Hence no Input Credit available
45	Purchase/Rental of vehicle for Goods Transport	Applicable	28% + Cess	Yes	Yes	Yes
46	Purchase of Computer	Applicable	18%	Yes	Yes	Yes
47	Purchase of Office Equipment	Applicable	Various	Yes	Yes	Yes
48	Purchase of office Furniture	Applicable	Various	Yes Refer Remarks	Yes	Yes Refer Remarks	ITC available on office furniture however if the furniture etc results into immovable property than no ITC is available.
49	Purchase of Cellular Phone	Applicable	12%	Yes	Yes	Yes
50	Purchase of Machinery	Applicable	Various	Yes	Yes	Yes