Reverse Charge Mechanism(RCM) in GST

FAQs

Q1. Under the GST Act, the liability or payment of GST is with consignee or consignor?

Ans. RCM has been provided in GST law for GTA and the recipient of GTA service (the consignor or consignee whoever pays freight will be treated as recipient of the service as per the Explanation provided in the Notification) and he is required to pay GST. Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017 may be referred to.

Q2. Whether RCM is applicable to payments made for hiring of transport from unregistered GST traders? 

Ans. RCM under section 9(3) is applicable to Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate. Effective from 01.01.2020 Notification No. 29/2019-C.T. (Rate), dated 31-12-2019.

Q3. Whether small payments like unloading charges, detention charges and those under “miscellaneous payments” to petty contractors are liable to reverse charge?

Ans. If you are not registered, payment on reverse charge under section 9(4) of the CGST Act, 2017 is not required. However, if such services availed fall within the domain of any service that is subject to reverse charge under section 9(3) of the CGST Act, 2017 you have to get yourself registered and GST has to be paid.

Q4. Can any unregistered transporter having a turnover below ` 20 lakhs carry the goods for a registered dealer?

Ans. Yes, GTA can carry the goods. GST on GTA services is liable to be paid on RCM basis by the recipient. However, supply of services of goods transport by road transporter other than a GTA and a courier is exempt under Notification No. 9/2017-Central Tax (Rate), dated 28-6-2017.

Q5. Whether tax under RCM is applicable for expenses incurred towards doctor sponsorship programme? 

Ans. As per Notification No. 13/2017- Central Tax (Rate), dated 28-6-2017), Sl. No. 4 sponsorship to any body corporate/partnership firm comes under RCM.

Q6. Suppose I am under composition scheme in GST. If I purchase goods from unregistered person, whether GST needs to be paid to Government by me or not?

Ans. Yes, you will be liable to pay tax on reverse charge basis for supplies from unregistered person only for supplies notified under section 9(4).

Q7. As a composition dealer, do I have to issue a self-invoice if I purchase goods from an unregistered person?

Ans. Yes, a composition dealer will issue a self-invoice as he is required to pay GST. However, he will not be eligible for ITC.

Q8. As per Notification No. 5/2017-Central Tax, dated 19-6-2017, the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under subsection (3) of section 9 of the CGST Act, 2017 are exempted from obtaining registration under the said Act. Please clarify whether a GTA providing service in relation to transportation of goods by road under reverse charge mechanism (RCM) can avail of the benefit of this exemption.

Ans. Yes, a GTA exclusively providing service in relation to transportation of goods by road under RCM can avail the benefit of this exemption.

Q9. Whether reverse charge is applicable to services provided by Government or local authorities?

Ans. Yes, reverse charge is applicable in respect of services provided by Government or local authorities to any person whose turnover exceeds ` 20 lakhs (` 10 lakhs for Special Category States) excluding the following services:

(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government.

(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of an airport or a port.

(iii) Transport of goods or passengers. Thus, the recipient of supply of goods or services is liable to pay the entire amount of tax involved in such supply of services or goods or both.

Q10. What is the format for invoices to be issued in the case of reverse charge payment of GST?

Ans. No separate format for any type of invoicing including self-invoicing has been prescribed. The contents of the invoice have been prescribed in Rule 46 of the CGST Rules, 2017.

Q11. Would I be liable to pay GST on reverse charge even if the foreign supplier of software from whom I buy for use in my firm registered under GST was to accept the payment in Indian Rupees? 

Ans. Yes, you would be liable to pay GST. A supply is treated as an import of service if the following conditions are satisfied: (1) the supplier of service is located outside India; (2) the recipient of service is located in India; and (3) the place of supply of service is in India. The place of such supply would be taken to be the location where the firm is registered (under GST) and the supplies would attract integrated tax (IGST). The factum of which currency was used to pay the consideration is immaterial.

Q12. Can payment of IGST on reverse charge basis on import of goods/services be done through book entry or ITC?

Ans. No. GST payable on reverse charge basis is to be discharged through cash only. Refer Rule 85(4) of the CGST Rules, 2017.

Q13. I am obtaining online database access services from a company abroad over the net. will I have to pay tax on reverse charge?

Ans. The recipient, if registered, has to pay the applicable IGST on reverse charge basis. If the recipient is not registered, the matter is treated as an online information and database access or retrieval service (OIDAR) and the OIDAR service provider is liable to take registration and pay tax. However, a non-taxable online recipient is not required to pay tax under RCM. “Non-taxable online recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

Q14. Whether a person exclusively engaged in supplies which are under RCM is required to register under GST?

Ans. No. Such persons are exempt from registration vide Notification No. 5/2017-Central Tax, dated 19-6-2017.

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