2020-01-20 19:23:22GST CenterEnglishThis article explains the concept of RCM under GST and compares the reverse charge mechanism under old GST return system with the one under...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2020/01/RCM-Under-GST.jpghttps://quickbooks.intuit.com/in/resources/gst-center/rcm-under-gst/RCM Under GST: Old Vs New GST Return Filing System

RCM Under GST: Old Vs New GST Return Filing System

14 min read

Typically, a normal registered taxpayer supplying goods and services is liable to pay tax under the GST regime. In other words, the registered supplier making taxable supplies is obligated to collect GST from the recipient of goods and pay the same to the government.

GST Payment – Normal

Let’s try to understand the typical tax payment procedure under GST with an example.

‘A’, a registered supplier residing in Delhi, supplies content writing services worth Rs. 1,00,000 to ‘B’, a recipient located in Bangalore. Since it is an inter – state supply, IGST @ 18% is applicable on such services.

A (located in Delhi) – supplier of content writing services
B (located in Bangalore) – recipient of services
Cost of Content Writing Services – Rs. 1,00,000
IGST applicable @18% – Rs. 18,000
Total Invoice Amount That ‘A’ Collects from ‘B’ – Rs. 1,18,000 (Cost plus GST)

Thus, ‘B’, the recipient, pays ‘A’, the supplier, IGST along with the cost of services. ‘A’ further pays IGST to the government.

In contrast to the typical tax payment under GST regime, under reverse charge, it is the recipient of goods and services who is liable to pay GST to the government instead of the supplier.

GST Payment – Reverse Charge

As the name suggests, the normal procedure to collect and pay GST to the government reverses under Reverse Charge Mechanism. Accordingly, in place of the supplier, it is the registered recipient of taxable supplies.

Let’s have a look at how GST payment works under Reverse Charge

‘C’, a registered supplier residing in Delhi, supplies unpeeled cashew nuts worth Rs. 1,00,000 to ‘D’, a recipient located in Delhi. Since it is an intra – state supply, GST @ 5% is applicable on cashew nuts. Also, since the supply of cashew nuts comes under reverse charge, ‘D’, the recipient is required to issue invoice himself and pay the applicable GST to the government instead of the supplier ‘C’. Such an invoice will carry a note towards the end saying that ‘Amount of tax is subject to reverse charge’. Also, ‘D’ will issue a payment voucher to the supplier ‘C’ for Rs. 1,00,000.

‘C’ (located in Delhi) – supplier of cashew nuts
‘D’ (located in Delhi) – recipient of cashew nuts
Cost of Cashew Nuts – Rs. 1,00,000
CGST applicable @ 2.5% – Rs. 2,500
SGST applicable @ 2.5% – Rs. 2,500
Total Taxable Value That ‘D’ pays to ‘C’ – Rs. 1,00,000

(Rs. 5,000 will not be paid by the supplier as the tax amount is subject to reverse charge. Thus, CGST and SGST amount is mentioned in the invoice separately with invoice further specifying that the amount of tax is subject to reverse charge)

Applicability of Reverse Charge

The GST law provides for various scenarios under which Reverse Charge becomes applicable.

  • Categories of Goods or Services Specified By CBIC

As per section 9 (3) of the CGST act and section 5 (3) of the IGST act, the government has specified certain categories of goods or services on which GST is paid on reverse charge basis. These include goods like cashew nuts, tobacco leaves etc and services like sponsorship services provided to corporate or partnership firm, services provided by arbitral tribunal to business entity etc.

Accordingly, the registered recipient of such taxable supplies has the liability to pay GST to the government in place of the supplier. Therefore, all the provisions of the GST Act apply to such a recipient, since he is obligated to pay GST on goods and services received by him.

  • Taxable Supplies by Unregistered Supplier to a Registered Supplier

The second scenario deals with the circumstances where an unregistered supplier supplies taxable goods or services to the registered buyer.

As per section 9(4) of the CGST act and 5(4) of the IGST act, taxable goods or services supplied by an unregistered supplier to a registered recipient shall come under reverse charge.

Accordingly, in such circumstances, it is the registered buyer who is liable to pay GST to the government and not the unregistered supplier. Therefore, all the provisions of the GST Act apply to such a recipient, since he is obligated to pay GST on goods and services received by him. Accordingly, the recipient has to undertake self – invoicing, specifying in the invoice that the amount of tax is liable to reverse charge. Further, the recipient is also required to issue a payment voucher to the supplier.

  • Services Supplied by Electronic Commerce Operator

As per section 9(5) of the CGST Act, 2017, services supplied by an e-commerce operator are also subject to the reverse charge mechanism. In other words, if an e-commerce operator supplies services, he shall be liable to collect and pay GST for the services thus supplied.

Therefore, the GST Act shall be applicable to the e-commerce operator as if he is the supplier who is liable to pay GST with regards to the supply of services.

Given these scenarios where reverse charge mechanism is applicable, it is necessary to understand reporting of such supplies attracting reverse charge by both the suppliers and recipients.

As per the old GST return filing system, forms GSTR 1 and GSTR 3B were the return forms in which relevant RCM details were also reported. However, with the rolling out of the new GST return filing system, GST RET – 1 is the new monthly return form, supplemented by ANX – 1 and ANX – 2, where taxable supplies attracting reverse charge are reported.

Let’s understand how the reporting of reverse charge has changed from old return filing to new return filing system under GST.

Reverse Charge – Old Vs New

  • Reverse Charge Mechanism Under Old Return Filing System

Under the old return filing system under GST, the registered taxpayers furnished monthly GST returns using forms GSTR – 1 and GSTR 3B. Let’s have a look at how taxable supplies attracting reverse charge were reported under the old GST return system.

GSTR 1 – Form for Outward Supplies (Used by the Registered Supplier to Report Outward Supplies Attracting Reverse Charge)

This was a return form used by the registered taxpayers to upload details of outward supplies of goods and services. Such a return had to be filed by the 10th of the month succeeding the month for which GST was to be filed.

The registered taxpayer filed invoice wise details of outward supplies and details of debit notes, credit notes and revised invoices related to such outward supplies.

Accordingly, in section 4 of the form GSTR -1, information in respect of taxable outward supplies made to registered persons was reported. Now, section 4 of form GSTR – 1 further included the following tables:

  • Table 4A – this section recorded outward supplies apart from those a) attracting reverse charge and b) supplies made via e commerce operator
  • Table 4B – this is where supplies attracting tax on reverse charge basis were reported by the registered taxpayers.
  • Table 4C – this section reported invoice level information of supplies made through e commerce operator attracting tax collected at source (TCS)

Therefore, the registered supplier making outward supplies attracting tax on reverse charge basis to registered recipient recorded such supplies in table 4B of form GSTR – 1.

Reverse Charge – Old Vs New

Reverse Charge Mechanism Under Old Return Filing System

Under the old return filing system under GST, the registered taxpayers furnished monthly GST returns using forms GSTR – 1 and GSTR 3B. Let’s have a look at how taxable supplies attracting reverse charge were reported under the old GST return system.

GSTR 1 – Form for Outward Supplies (Used by the Registered Supplier to Report Outward Supplies Attracting Reverse Charge)

This was a return form used by the registered taxpayers to upload details of outward supplies of goods and services. Such a return had to be filed by the 10th of the month succeeding the month for which GST was to be filed.

The registered taxpayer filed invoice wise details of outward supplies and details of debit notes, credit notes and revised invoices related to such outward supplies.

Accordingly, in section 4 of the form GSTR -1, information in respect of taxable outward supplies made to registered persons was reported. Now, section 4 of form GSTR – 1 further included the following tables:

Table 4A – this section recorded outward supplies apart from those a) attracting reverse charge and b) supplies made via e commerce operator
Table 4B – this is where supplies attracting tax on reverse charge basis were reported by the registered taxpayers.
Table 4C – this section reported invoice level information of supplies made through e commerce operator attracting tax collected at source (TCS)

Therefore, the registered supplier making outward supplies attracting tax on reverse charge basis to registered recipient recorded such supplies in table 4B of form GSTR – 1.

GSTR 3B – Summary Return (Used by the Registered Recipient to Report Inward Supplies Attracting Reverse Charge)

The other return form used under old GST return filing was GSTR 3B. It was required to be submitted by the 20th of the month succeeding the tax period for which GST was filed.

This was a simplified summary return required to be filed by every registered taxpayer. GSTR 3B declared the GST liabilities of the taxpayers. Since it was a summary return, it did not require the compliance of comparing invoices between suppliers and recipients.

Accordingly, in table 3.1 of the form GSTR -3B, information in respect of inward supplies liable to reverse charge was reported by the registered recipient. Now, Table 3.1 of form GSTR – 1 further included the following sections:

  • Outward taxable supplies apart from zero rated, nil rated and exempted supplies
  • Zero rated outward taxable supplies
  • Nil rated or exempt outward supplies
  • Inward supplies liable to reverse charge
  • Non GST outward supplies

Thus, the registered recipient recorded inward supplies attracting on reverse charge basis in table 3.1, section d.

ITC for RCM Supplies

Under RCM, the supplier cannot claim an input tax credit on GST paid on goods and services that attract tax on reverse charge basis.
Thus, it is the recipient who claims the benefit of credit on goods or services that are liable to tax on reverse charge basis.

As per section section 49(4) of the CGST act, 2017, the amount available in the electronic credit ledger of the taxpayer can be utilized only to pay the outward tax liability under GST.

Therefore, any tax amount liable to be paid under reverse charge mechanism shall be done through electronic cash ledger only of the recipient. Also, the recipient can avail credit for the tax paid on goods or services subject to reverse charge only if such goods or services are used or would be used for business purposes by him.

Furthermore, the recipient can claim ITC on inward supplies attracting reverse charge in table 4, part A of form GSTR 3B and utilize this ITC on inputs in the next tax period.

Reverse Charge Mechanism Under the New Return Filing System

Under the new GST return filing system, the registered taxpayers need to file only one main return called GST RET – 1 that further contains two annexures namely GST ANX – 1 and GST ANX – 2.

Large taxpayers having an annual turnover of more than Rs. 5 crores are required to file GST RET – 1 on a month on month basis.

However, the small taxpayers having an annual turnover of up to Rs. 5 crores can choose to file GST RET – 1 on a monthly or quarterly basis under the new GST return system.

Furthermore, small taxpayers can also choose to file returns in two new quarterly returns, that is GST Sahaj (Form GST RET – 2) and GST Sugam (Form GST RET – 3), in place of filing quarterly returns in Form GST RET – 1.

However, the GST on taxable supplies need to be paid on a monthly basis in form GST PMT – 08.

Let’s have a look at each of these return forms to understand reporting of RCM under new return system.

GST RET – 1

  • Main return that is filed monthly by large taxpayers
  • Small taxpayers too can choose to file GST RET – 1 either on a monthly or quarterly basis
  • If GST RET – 1 is filed quarterly, GST is paid monthly by filing GST PMT – 08
  • Contains two annexures namely GST ANX – 1 and GST ANX – 2
  • ANX – 1 contains details in respect of outward supplies, imports and inward supplies attracting reverse charge
  • ANX – 2 contains details with regards to inward supplies for the recipient to take the requisite action
  • Thus, it is the recipient who records invoice wise details of inward supplies attracting tax on reverse charge basis in table 3H of GST ANX – 1 under new return system. The details of inward supplies in ANX – 1 get auto populated in table 3B of GST RET – 1. Further, the credit for these purchases made on reverse charge basis gets auto populated in table 4A, part 5 namely ‘Inward Supplies Attracting Reverse Charge’
  • The supplier, however, while filing GST RET -1, furnishes the sales summary of outward supplies liable to reverse charge in section D titled ‘Details of Supplies Having no Liability’ of table 3 in GST RET – 1.

GST RET – 2

  • Quarterly return that is filed by small taxpayers who are into B2C supplies
  • With GST RET – 2, GST is paid monthly by filing GST PMT – 08
  • Contains two annexures namely GST ANX – 1 and GST ANX – 2
  • ANX – 1 contains details in respect of outward supplies and inward supplies attracting reverse charge
  • ANX – 2 contains details with regards to inward supplies for the recipient to take the requisite action
  • Thus, it is the recipient who records invoice wise details of inward supplies attracting tax on reverse charge basis in table 3H of GST ANX – 1 under new return system. The details of inward supplies in ANX – 1 get auto populated in table 3B of GST RET – 1. Further, the credit for these purchases made on reverse charge basis gets auto populated in table 4A, part 5 namely ‘Inward Supplies Attracting Reverse Charge’
  • The supplier, however, need not record outward supplies liable to reverse charge in GST RET – 2

GST RET – 3

  • Quarterly return that is filed by small taxpayers who are into both B2B and B2C supplies in India
  • With GST RET – 3, GST is paid monthly by filing GST PMT – 08
  • Contains two annexures namely GST ANX – 1 and GST ANX – 2
  • ANX – 1 contains details in respect of outward supplies and inward supplies attracting reverse charge
  • ANX – 2 contains details with regards to inward supplies for the recipient to take the requisite action
  • Thus, it is the recipient who records invoice wise details of inward supplies attracting tax on reverse charge basis in table 3H of GST ANX – 1 under new return system. The details of inward supplies in ANX – 1 get auto populated in table 3B of GST RET – 1. Further, the credit for these purchases made on reverse charge basis gets auto populated in table 4A, part 5 namely ‘Inward Supplies Attracting Reverse Charge’
  • The supplier, however, need not record outward supplies liable to reverse charge in GST RET – 3

All Topics

 

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

GST on Transport: Goods Transport Agency Under GST

In this article you will learn: Transportation of Goods by Road What…

Read more

TRAN 1 in GST: Components, Format and Provisions

In this article you will learn: What is GST TRAN-1? Who Can…

Read more

GST Exemption List For Services: A Detailed Guide

To determine tax rate for a given good or service, it is…

Read more