1. Reverse Charge Mechanism CA Sachin Kasliwal CA Aditya Shinde
9/20/2018

2. Rational Behind RCM
1) Large no of assessees with small payment of tax from each assessee:-
Eg:- Insurance Agents are more than 1 Cr. But Insurance companies are less than 30-50
Less revenue as each agent might not get more than 20lacs per year
2) Jurisdiction: -
Imports of services
3) Difficulty in collection of tax :-
GTA
9/20/2018

3. Section Covering RCM Section 9(3)/5(3):-
“The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both”
Specified RCM
9/20/2018

4. Section Covering RCM Section 9(4)/5(4):-
“The State tax/integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both”
URD RCM
9/20/2018

5. Section Covering RCM Section 9(5)/5(5):-
Electronic Commerce Operator RCM.
EC RCM
9/20/2018

6. Updates till date Notification no 4 CGST ( cashew Nuts Etc)
Notification no 5 CGST (100% RCM, No Reg)
Notification no 8 CGST (5000/- Exemption)
Notification on 10 CGST (Second hand goods)
Notification no 13 CGST (RCM category)
Notification no 10 IGST (RCM Category)
Press Release for GOLD/Second hand bottles
9/20/2018

7. Formalities to be done Account for Liability Issue an “TAX Invoice”
Mention payment under reverse Charge
Issue an “Payment Voucher”
9/20/2018

8. Formalities to be done Account for Liability
Purchase / Expense A/c. ———10,000
Input CGST A/c. ——————- 900
Input SGST A/c. ——————- 900
To Creditors A/c. or Cash/Bank Ac —— 10,000
To CGST RCM A/c Payable ———————–900
To SGST RCM A/c Payable ———————–900
9/20/2018

9. Main Principles of URD RCM
a. There should be supply.
b. Supply should be in respect of taxable goods or services or both.
c. Supply must be by unregistered person.
d. Supply must be to registered person.
9/20/2018

10. Specified RCM Sno Services 1
Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient 2
Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road 3
Services supplied by an advocates 4
Services provided by way of sponsorship to any body corporate or partnership firm. 5
Services supplied by a director of a company or a body corporate to the said company or the body corporate. 6
Services supplied by an insurance agent to any person carrying on insurance business 7
Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. 8
Services supplied by an insurance agent to any person carrying on insurance business.
9/20/2018

11. 9/20/2018

12. Services by advocates under Specified RCM
What all services it covers?
Only representational services in front of authority ?? Or
(d) Above and all legal, advice, consultancy or assistance in any branch of law ???
ANS:- IT covers all
9/20/2018

13. What all services it covers?
Services supplied by a director of a company to the said company :- Specified RCM
What all services it covers?
Whole time Director payment?
- Employer employee relationship ??
- TDS under salary in Income Tax
- No distinction between director given in notification
(d) Director remuneration ? Director Fees? Commission ?
9/20/2018

14. Do we need to raise TAX INVOICE for every transaction
YES
But facility of one invoice per month is given
But only for URD taxation. Not for specified RD RCM.
9/20/2018

15. Credit of Rs. 10,000/- RCM Liability Rs. 5000/- Can it be adjusted???NO
RCM liability needs to be paid in cash
9/20/2018

16. IS RCM applicable to advances?
YES
As per Section 12(3) of CGST Act 2017, “In case of reverse charge, the time of supply shall be the earliest of the
following dates—
(a) the date of receipt of goods OR
(b) the date of payment OR
(c) the date immediately after 30 days from the date of issue of invoice by the supplier .
Time of supply of services
9/20/2018

17. IS RCM applicable to advances?
Time of supply of services
Earlier of Following:-
Date of Payment or
b) Date immediately following 60 days from the date of issue of invoice or any other document
9/20/2018

18. Payment of Rent of Rs. 6000/- p.m. to URD, Will RCM be applicable?
What if rent agreement is per day basis???
9/20/2018

19. YES – IGST notification and
Case Study :- Trading Account for the Year ended IS Registration Required??? RCM applicable ?
Purchases
Amount
Sales
OMS – Coconut (fully exempt)
1 cr
MS – Coconuts (fully Exempt)
2 Cr
Service Imported
25 Lacs
Profit:-
75 lacs
Total
2 cr
YES – IGST notification and
Service’s under RCM as per section 7, It’s a Supply
9/20/2018

20. Case Study :- Trading Account for the Year ended 31. 03
Case Study :- Trading Account for the Year ended IS URD RCM Applicable ??
Purchases
Amount
Sales
OMS – Coconut (fully exempt)
1 cr
MS – Coconuts (fully Exempt)
2 Cr
Goods Imported
25 Lacs
Profit:-
75 lacs
Total
2 cr
ISSUE
9/20/2018

21. Case Study :- Trading Account for the Year ended 31.03.2018
Following arguments can be made to claim that Import of goods does not attract RCM: a. Whether import of goods Is supply of taxable goods? b. Whether a foreign entity is a supplier c. Will a foreign entity be covered as a not registered person
ISSUE
9/20/2018

22. Case Study :- Trading Account for the Year ended 31. 03
Case Study :- Trading Account for the Year ended Lets settle down above arguments
1.) As IGST is charged on import of goods and also input tax includes IGST paid on import, it means import of goods is without any argument a supply of goods.
2.) To apply RCM foreign entity/company must be a supplier and also non register person As per definition of supplier , supplier is “ a person “ supplying goods…….etc Now definition of person includes any body corporate incorporated by or under the laws of the country outside India. Thus a foreign company qualifies to be a person, and thus qualifies to be a supplier. Now whether it qualifies to be a non register person? Yes!
3.) Because Not registered person is not defined in act so we shall see definition of registered person which says person registered under sec 25 but does not include person having UIN. So a “Not registered person” is one who did not take registration under section 25, thus foreign company not registered us 25 will qualify as not register supplier
4) Twitter Ans
9/20/2018

23. Case Study :- Trading Account for the Year ended 31. 03
Case Study :- Trading Account for the Year ended Lets settle down above arguments 1.) As IGST is charged on import of goods and also input tax includes IGST paid on import, it means import of goods is without any argument a supply of goods. 2.) To apply RCM foreign entity/company must be a supplier and also non register person As per definition of supplier , supplier is “ a person “ supplying goods…….etc Now definition of person includes any body corporate incorporated by or under the laws of the country outside India. Thus a foreign company qualifies to be a person, and thus qualifies to be a supplier. Now whether it qualifies to be a non register person? Yes! 3.) Because Not registered person is not defined in act so we shall see definition of registered person which says person registered under sec 25 but does not include person having UIN. So a “Not registered person” is one who did not take registration under section 25, thus foreign company not registered us 25 will qualify as not register supplier 4.) Twitter ANS
9/20/2018

24. Goods Transport Agency in under Specified RCM
Transportation of Goods other than GTA and courier agency are exempt
Meaning of GTA:-
“Goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called”
What if No Consignment not is issued??
How to prove that’s goods are not received from GTA??
What about Individual Truck Owners, are they GTA?
9/20/2018

25. Goods Transport Agency in under Specified RCM
Exemption from Tax to GTA:-
(a) agricultural produce;
(b) Charges for single consignment dose not exceed Rs. 1500;
(c) goods, charges for single consignee does not exceed Rs. 750/-;
(d) milk, salt and food grain including flour, pulses and rice;
(e) organic manure;
(f) newspaper or magazines registered with the Registrar of Newspapers;
(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or
(h) defence or military equipments.
9/20/2018

26. Goods Transport Agency in under Specified RCM
Exemption from Tax to GTA:- Issues
agricultural produce
– Meaning ?? What all things it covers ?
(d) milk, salt and food grain including flour, pulses and rice;
- Why this entry when foods grains could have been covered above?
9/20/2018

27. Goods Transport Agency in under Specified RCM
Turnover of GTA/Lawyer or any RCM category is 1 Cr
IS GTA Required to take Registrations ??
ANS:- NO, Notifications no 4
9/20/2018

28. Case Study :- Trading Account for the Year ended 31. 03
Case Study :- Trading Account for the Year ended IS Registration Required???
Purchases
Amount
Sales
OMS – Coconut (fully exempt)
25 lacs
MS – Coconuts (fully Exempt)
35 lacs
Profit:- 8
Total
35 lcas NO
9/20/2018

29. Case Study :- Trading Account for the Year ended 31. 03
Case Study :- Trading Account for the Year ended IS Registration Required???
Purchases
Amount
Sales
OMS – Coconut (fully exempt)
25 lacs
MS – Coconuts (fully Exempt)
35 lacs
GTA expenses
2 lacs
Profit:- 8
Total
35 lcas
Yes, Specified RCM
9/20/2018

30. Case Study :- Trading Account for the Year ended 31. 03
Case Study :- Trading Account for the Year ended IS Registration Required??? IS It a Composite Supply or a GTA Supply? IS GTA Supply of 1.5 lacs or 3.5 lacs
Purchases
Amount
Sales
OMS – Coconut (fully exempt)
25 lacs
MS – Coconuts/Seeds (fully Exempt)
35 lacs
GTA Expenses (RCM applicable)
1.5 lacs
Freight charges mentioned in Bill
2 lacs
Profit:- 8
Total
35 lcas
Issue
9/20/2018

31. Case Study :- Trading Account for a day Calculate RCM Liability??
Purchases
Amount
Sales
URD Purchases
5000
RCM liability :- NIL
9/20/2018

32. Case Study :- Trading Account for a day Calculate RCM Liability??
Purchases
Amount
Sales
URD Purchases
5001
RCM liability :- on Rs. 5001/-
9/20/2018

33. Case Study :- Trading Account for a Day Calculate RCM Liability??
Purchases
Amount
Sales
URD MS purchases
4500
URD OMS Purchases
500
CGST:- NIL
IGST:- TAX ( NO notification for Interstate supplies) – Issue??
SGST - ??
9/20/2018

34. Delhi will be pace of supply
Case Study :- Place of Supply for OMS expenses?? Calculate RCM Liability Rate?? Place of Supply?? Availing Credits of OMS ?
Purchases
Amount
Sales
Hotel Stay Delhi
4500
Food Expenses Delhi
8000
Rate as Specified
Delhi will be pace of supply
Tax would be Delhi CGST and SGST?? Payment issue?
Credits availment issue ??
9/20/2018

35. Case Study :- Calculate RCM applicability ?? Read notification 12/17
Purchases
Amount
RCM Applicable, if not registered
Remarks
Traveling and Conveyance
6500
Travel by Private BUS
7500
Travel by Shivneri
8000
Excluded from services Exemption (if P.Y. turnover above 20 lacs)
Petrol and Diesel Expenses
7000
Speed Post expenses
Auto RIshkaw
Need more info
YES
YES NO
YES
9/20/2018 NO

36. RCM Applicable, if not registered Remarks
Case Study :- Calculate RCM applicability ?? Please Read Notification 12/2017 for exemption, which will be covered on 21/07/17
Purchases
RCM Applicable, if not registered
Remarks
Electricity
Water charges
Bank Interest
Petrol and Diesel Expenses
Rent and Other Deposit
Donation
Salary
Interest to relatives on loan NO
Out of GST NO
Out of GST NO NO NO
Only if Adjusted NO
No Consideration NO NO
Exempt –sr.no.27
9/20/2018

37. IF RCM not paid by Receiver , Will service provider be liable for tax??
NO , No Power given in section .
Obligation only to receiver
9/20/2018

38. What happens in Assessment when no RCM Paid
Conditions for Claiming ITC
9/20/2018

39. Double Taxation in case of URD dealer asked to pay tax
Can Government take tax twice on the same transaction
Constitutional Validity
9/20/2018

40. 9/20/2018