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Reverse Charge Mechanism - Major Changes Under GST

By Finance Advisory, 3rd Eye Advisory®
Reverse Charge Mechanism - Major Changes Under GST

Introduction of RCM will change the way of doing the business. The reason behind its implementation is to increase tax compliance and tax revenues thus, building up the nation.

REVERSE CHARGE MECHANISM basically means that the GST is to be paid and deposited with the Govt by the recipient of Goods/Services and not by the supplier of Goods/Services.

The major changes under Reverse Charge mechanism applies to Goods only. The Goods and Services on which reverse charge mechanism applies will be notified by the GST council in near future.

REVERSE CHARGE - UNREGISTERED TO REGISTERED

Any registered person receiving any taxable goods/services from an unregistered person then the recipient of such goods/services shall be liable to pay tax on them. Thus, increasing the compliance burden of the recipient.

TIME OF SUPPLY UNDER REVERSE CHARGE

In case of goods -

The time of supply will be earliest of the following:

  • Date of receipt of goods; or
  • Date on which payment is made; or
  • Date immediately following 30 days from the date of issue of invoice by the supplier

In case of services -

The time of supply will be earliest of the following:

  • Date on which payment is made; or
  • Date immediately following 60 days from the date of issue of invoice by the supplier.

INPUT TAX CREDIT ON REVERSE CHARGE

Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The person who purchases goods or services recipient (i.e. who pays reverse tax) can avail input tax credit.

EXCEPTION TO REVERSE CHARGE

The exception is that if exempted or non-taxable goods/services are received from an unregistered supplier then registered person shall not be required to pay tax under reverse charge and if the transactions are between unregistered persons meaning thereby if both the supplier and recipient are unregistered then no need for tax.

CONCLUSION

There are both pros and cons for reverse charge mechanism and thus no accurate conclusion can be drawn out. On one hand, it will absolutely be burdensome for the small supply receivers, but on the other hand it will increase tax compliance for the country as a whole and would increase transparency.

What one need is absolute guidance on the evolving tax system which is changing the dynamics of economy altogether. Every business big or small has to be covered under the benefits of GST, and this calls for an expert advice, opinion and guidance. 3rd Eye Advisory® with its pool of certified professionals and experts of finance and economy have been providing worthy suggestions and services for its clients and companies to overcome the barriers caused due to incomplete understanding of GST. If your company too, falls under same bracket then, approach us without wasting a single moment from now, as the situation and the policies are going to become more intense before it clears all cloud of doubt and dilemma.

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Article by: Finance Advisory, 3rd Eye Advisory®