GST Reverse Cost Mechanism (RCM) principally implies that the GST is to be paid and deposited with the Govt by the recipient of Items/ Providers and never by the provider of Items/ Providers.
Beneath the conventional mechanism of levy of GST, the receiver of products/companies pays the GST to the provider of products/ companies and such provider then deposits the GST with the Govt. (after taking the good thing about enter tax credit score).
Nonetheless, below the Reverse Cost Mechanism, the GST is paid and deposited by the recipient with the Govt. on behalf of the provider of service. The traditional mechanism of levy of GST and the Reverse Cost Mechanism has been defined beneath with the assistance of this Infographic.
When is GST Reverse Cost Mechanism relevant?
GST Reverse Cost Mechanism (also called RCM) shouldn’t be relevant below regular circumstances. It’s only relevant below the circumstances that are particularly talked about in Part 9(4) and Part 9(3) which have been talked about beneath.
You will need to notice that the Reverse Cost below Part 9(4) i.e. for transactions with Unregistered Sellers is at present not relevant because it has been suspended until thirtieth Sept 2019.
Reverse Cost below Part 9(3) i.e. for Transactions for specified items and companies are nonetheless relevant and Reverse Cost would proceed to be levied.
Reverse Cost below Part 9(4) – Provide from Unregistered to Registered Individual
If an individual not registered below GST provides Items or Providers to an individual who’s registered below GST, then in such instances – Reverse Cost Mechanism would get relevant i.e. the GST can be required to be paid by the Registered Individual on to the Govt on behalf of the provider.
Nonetheless, in case of provide of exempt items or companies, GST below Reverse Cost Mechanism shall not be relevant. This may be defined with the assistance of an instance.
Instance 1: A registered particular person hires an Auto Rickshaw for commuting from one place to a different, then in such instances – Part 9(4) wouldn’t be relevant because the transportation of passenger by auto rickshaw is an exempted service.
Instance 2: A registered particular person stays in a resort whose room tariff is lower than Rs. 1000. Part 9(4) wouldn’t be relevant because the companies by a resort having declared worth lower than Rs. 1000 per day or equal is an exempt service.
It’s pertinent to notice right here that the provisions of Reverse Cost below Part 9(4) are relevant just for provides inside the identical state. The provisions of Reverse Cost below this Part are usually not relevant to Inter-state provides as inter-state provides can’t be made by unregistered suppliers.
To make an inter-state provide, the 1st situation is that the provider ought to be registered below GST. And if the provider is registered, the provisions of Reverse Cost below Part 9(4) wouldn’t apply and the conventional mechanism of levy of GST would apply.
Instance 3: Rajat (based mostly in New Delhi) gives Consultancy Providers to Sachin (based mostly in Bangalore) and prices Rs. 20,000 for a similar. Rajat shouldn’t be registered below GST however Sachin is registered. Would the provisions of Reverse Cost apply on this case?
Resolution: Within the above talked about case, as Mr. Rajat is offering an inter-state service, he can be required to mandatorily get registered below GST. With out getting registered – he can’t present inter-state service. Solely registered individuals can present inter-state service.
To offer inter-state service, Mr. Rajat can be required to get registered. And as soon as, he will get registered, this is able to be a transaction between Rajat and Sachin each of whom are registered below GST and due to this fact the provisions of Part 9(4) gained’t apply for the levy of GST.
Exemption to Reverse Cost below Part 9(4)
Reverse Cost provisions wouldn’t be relevant if the combination worth of such provides of products or companies or each acquired by a taxable particular person from all or any the suppliers, who are usually not registered, doesn’t exceed Rs. 5,000 in a day (Notification No. 08/2017 dated 28/06/2017).
In different phrases, if the overall provide of products or companies from unregistered individuals doesn’t exceed Rs. 5,000 in a day, then the provisions of reverse cost wouldn’t be relevant.
Instance 4: Karan Batra (Registered below GST) will get his web site redesigned from Rajan based mostly in New Delhi (unregistered particular person based mostly) on 15th July 2017 for Rs. 4,000. He doesn’t get every other service/good from every other unregistered provider on 15th July 2017.
In such a case, the provisions of Reverse Cost wouldn’t be relevant as the combination worth of such provides for unregistered sellers is lower than Rs. 4000 in a single day.
Instance 5: Karan Batra will get his web site redesigned from Rajan based mostly in New Delhi (an unregistered particular person below GST) on 15th July for Rs. 4000. He additionally hires Sahil, a digital marketer based mostly in New Delhi (Unregistered below GST) for promotion of his web site on 15th July for Rs. 3000.
In such a case, the provisions of Reverse Cost can be relevant as the combination worth of such provides is Rs. 7000 which is greater than Rs. 5,000 in a day.
Reverse Cost below Part 9(3) – Items & Providers notified by Govt for levy of Reverse Cost Mechanism
Reverse Cost Mechanism can be relevant on sure items and companies that are notified by the Govt. Reverse Cost below Part 9(3) is relevant for each inter-state in addition to identical state transactions. The products and companies on which GST shall be levied below the Reverse Cost Mechanism have been talked about beneath.
Reverse Cost on Items below Part 9(3)
The Items on which GST shall be levied below Reverse Cost have been introduced vide Notification No. 04/2017 dated 28th June 2017 and these have been talked about beneath for prepared reference.
|S. No.||Description of Provide of Items||Provider of Items||Recipient of Provide|
|1||Cashew nuts, not shelled or peeled||Agriculturist||Any registered particular person|
|2||Bidi wrapper leaves (tendu)||Agriculturist||Any registered particular person|
|3||Tobacco Leaves||Agriculturist||Any registered particular person|
|4||Silk Yarn||Any one who manufactures silk yarn from uncooked silk worm cocoons for provide of silk yarn||Any registered particular person|
|5||Provide of Lottery||State Govt., Union Territory or Native Authority||Lottery Distributer or Promoting Agent|
Reverse Cost on Providers below Part 9(3)
The Providers on which GST shall be levied below Reverse Cost have been talked about beneath for prepared reference.
|S. No.||Description of Provide of Providers||Provider of Items||Recipient of Provide|
|1.||Any service equipped by any one who is situated in a non-taxable territory.||Any particular person situated in Non-taxable territory.||Any particular person situated in taxable territory aside from non-taxable on-line recipient|
|2||Provide of Providers by a Items Transport Company (GTA)||Items Transport Company (GTA)||– Any manufacturing facility registered below or ruled by the Factories Act 1948, or
-Any society registered below the Societies Registration Act, 1860 or below every other regulation in the interim in power in any a part of India, or
-Any co-operative society established by or below any regulation, or
-Any particular person registered below CGST Act or SGST Act or IGST Act or UTGST Act, or
-Any physique co-operate established, by or below any regulation, or
-Any partnership agency whether or not registered or not below any regulation together with affiliation of individuals, or
-Any Informal taxable particular person
Situated within the taxable territory.
|3||Providers offered by a person advocate together with a Senior Advocate by the use of Representational Providers earlier than any Courtroom, Tribunal or Authority by the use of Authorized Providers, to a Enterprise Entity||Any Particular person Advocate together with a Senior Advocate or agency of Advocates||Any Enterprise entity situated within the taxable territory.|
|4||Providers offered by an Arbitral Tribunal to a Enterprise Entity||Any Arbitral Tribunal||Any Enterprise entity situated within the taxable territory.|
|5||Sponsorship Service||Any Individual||A Physique Company or Partnership Agency situated within the taxable territory|
|6||Providers offered by the Govt. ,or Native Authority excluding:-
-Renting of Immovable Property, and
-Service specified beneath
-Providers by the Division of Posts by the use of Velocity Submit, categorical parcel submit, life insurance coverage, and company companies offered to an individual aside from Central Govt., State Govt., or Union Territory or Native Authority
-Providers in relation to an plane or a vessel, inside or exterior the precincts of an airport or a port
-Transport of Items or Passengers
|Central Govt., State Govt., Union Territory or Native Authority||Any Enterprise entity situated within the taxable territory|
|7||Providers offered or agreed to be offered by a Director of a Firm or a Physique Company to the stated Firm or the Physique Company||A Director of a Firm or a Physique Company||A Firm or a Physique Company|
|8||Providers offered or agreed to be offered by an Insurance coverage Agent||An Insurance coverage Agent||Any Individual carrying on the Insurance coverage Enterprise|
|9||Providers offered or agreed to be offered by a Restoration Agent||A Restoration Agent||A Banking Firm or a Monetary Establishment or a NBFC|
|10||Providers equipped by an individual situated in non-taxable territory by the use of transportation of products by a vessel from a spot exterior India as much as customs station of clearance in India.||An individual situated in non-taxable territory.||Importer, as Clause 26 of Part 2 of the Customs Act, 1962 situated within the taxable territory.|
|11||Provide of companies by an creator, music composer, photographer, artist or the like by the use of switch or allowing the usage of a copyright lined below Part 13(1)(a) of the Copyright Act 1957||Writer or Music Composer, Photographer, Artist and many others||Writer, Music Firm, Producer|
Time of Provide for Reverse Cost below GST
For the levy of Reverse Cost below GST, it is extremely essential to determine the time of provide as GST can be required to be deposited with the Govt inside 20 days from the top of the month through which the companies have been offered.
Time of provide in case of provide of Items
In case of Reverse Cost, the time of provide can be the earliest of the next
- The date of receipt of products, or
- The date of fee, or
- The date instantly after 30 days from the date of situation of bill by the provider.
If it isn’t potential to find out the time of provide below (a), (b) or (c) above, the time of provide shall be the date of entry within the books of accounts of the recipient.
Instance 6: Decide the Time of Provide within the beneath talked about case of provide of products:-
- Date of Receipt of Items: 14th Oct
- Date of Fee: 19th Dec
- Date of Bill: 1st Nov
- Date of entry in Books: 18th Oct
Resolution: Within the above talked about case the time of provide can be 14th Oct. Nonetheless, in case (a), (b), (c) are usually not obtainable, the date of entry within the books i.e. 18th Oct can be thought of.
Time of provide in case of provide of Providers
In case of Reverse Cost, the time of provide can be the earliest of the next
- The date of fee, or
- The date instantly after 60 days from the date of situation of bill by the provider.
If it isn’t potential to find out the time of provide below (a) or (b) above, the time of provide shall be the date of entry within the books of accounts of the recipient.
Instance 7: Decide the Time of Provide within the beneath talked about case of provide of products:-
- Date of Fee: 10th August
- Date of Bill: 21st July
- Date of entry in Books: 1st August
Resolution: Within the above talked about case the time of provide can be 10th August. Nonetheless, in case (a), (b) are usually not obtainable, the date of entry within the books i.e. 1st August can be thought of.
Date of Fee
For the aim of computation of Date of Provide, the Date of Fee shall be earlier of the next:-
- The date on which the fee is debited from his checking account or
- The date on which the recipient entered the fee in his books
Different Related Factors concerning levy of Reverse Cost Mechanism (RCM)
- All individuals procuring items or companies notified below Part 9(3) or Part 9(4) are mandatorily required to acquire GST Registration.
- GST levied below the Reverse Cost mechanism ought to be deposited with the Govt by the 20th of the subsequent month.
- GST paid below the Reverse Cost mechanism can be obtainable for Enter Tax Credit score if such items and/or companies are used within the furtherance of enterprise. The service recipient (i.e. who pays reverse cost) can avail enter tax credit score.
- The main points of GST paid below Reverse Cost Mechanism (RCM) wouldn’t be auto-populated within the GSTR 2 and these particulars can be required to be manually furnished.
- In instances the place RCM is levied, the recipient shall increase an Bill on self. Bill shall be issued each day for all consolidated purchases made through the day on which GST is levied below Reverse Cost. [Section 31(3)(f)]
- On the time of fee to the provider, the recipient shall additionally situation a fee voucher for the fee made.
- Enter Tax Credit score with the recipient can’t be used for fee of Reverse Cost to the Govt.
- A registered particular person won’t free enter tax credit score of GST paid below Reverse Cost even when the fee shouldn’t be made inside 180 days.
- Reverse Cost can be relevant to recipients registered below the Composition Scheme. No Credit score of RCM is obtainable in such instances.
- RCM is levied on advance funds as properly.