07 Aug 2018Posted By: Mudit Handa


Why has GST Reverse Charge been suspended till the next year?

Over the year, the GST laws regarding GST registration and GST return filing have been repeatedly modified in the consecutive GST council meetings, as to make them more conducive and user-friendly.

However, there are still certain thorny issues within the realm of the Goods & Service Tax that pose major tailbacks to the smooth and hassle-free growth.

Recently, the Central Board of Indirect taxes & Customs (CBIC) has notified clearly that the provisions regarding the Reverse Charge Mechanism (RCM) have been further Deferred by Government till the next year.

 

#1. How much was the period of suspension of RCM, earlier?

The provisions of RCM were suspended by the CBIC (then CBEC) had repeatedly notified on 13 Oct. 2017, 23 March 2018 and 29 June 2018 regarding the deferment of the implementation of the RCM provisions. The implementation of these provisions was kept on hold first till 31 March 2018. At the 26th GST council meeting, the RCM provision was suspended till 30 June 2018 and subsequently till 30 September 2018.

 

#2. How much has been the postponement of RCM as of now?

As of now, the CBIC has deferred the RCM up to 30th September 2019 from 30 September 2018 after the 28th GST council meeting.

#3. What does the Reverse Charge Mechanism signify?

The concept of Reverse Charge Mechanism or RCM has been explained u/s 9(4) of the CGST Act, 2017, Section 5(4) of IGST Act, 2017 and Section 7(4) of the UTGST Act, 2017.  

Under this provision, in case a taxpayer who has undergone GST registration buys certain taxable supplies from an unregistered vendor, he will have to pay the GST liability on such supplies.


 

#4. Why has been the RCM scheme extended repeatedly?

The RCM scheme was introduced in the GST regime to include those tax assessees who had not undergone the GST registration procedure. However, this was at the cost of the registered taxpayer, and he had to incur the liability on behalf of his unregistered vendor.

The experts have opined that this clause is discriminative to the registered taxpayers. Perhaps, that’s why the GST council had even decided to eliminate the reverse charge from the GST Act.

As of now, the RCM is extended until next year.

 

#5. Why has the implementation of RCM still on hold?

The council has only called for a partial suspension of RCM. the A group of ministers will examine the methodology of the RCM scheme as to track and remove all hassles it poses to trade and commerce and make it more conducive for the small traders.

 

#6. How will this ‘partial suspension of RCM’ be helpful?

 

This partial deferment of RCM is basically for the convenience of large registered taxpayers as well as for the relief of unregistered ones. This is justifiable as-

  • It will provide sufficient time to unregistered dealers get familiarized with the compliances of GST registration and GST return filing. Meanwhile, the Government will also be able to streamline the relevant procedures.
  • The registered dealers were reluctant to incur GST liability on the behalf of small or unregistered ones.
  • In order to evade unwanted liability, registered dealers got reluctant to do business with small traders. This could be really detrimental for economy and MSMEs in general.
  • The government is keen on introducing an RCM scheme beneficial for small businesses and also cost-effective in the terms of compliance.  

 

Moreover, the GST Council has recommended in 28th GST council meeting to limit the span of RCM provisions to the specific supplies only.

In case you require any other guidance concerning GST registration in India, feel free to contact us at 8881-069-069.

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