GST
This query is : Resolved
09 July 2017
If company get service from any unregistered person than company has to pay tax but whether it will be allowed as input tax credit
09 July 2017
If the service is not covered under the ineligible services as per Section 17 (5) of CGST Act, 2017 and satisfies other conditions with regard to documents as per the Input credit rules, Input credit can be taken
09 July 2017
what type of documents to be required
26 July 2024
When a company receives services from an unregistered person under GST, it is indeed required to pay GST under the Reverse Charge Mechanism (RCM). Here’s a detailed explanation on how this works and what you need to ensure:
### 1. **Reverse Charge Mechanism (RCM)**
#### **Tax Payment:**
- **Reverse Charge:** If you receive services from an unregistered person or entity, you are liable to pay GST under the Reverse Charge Mechanism. This means you, as the recipient, need to pay the GST directly to the government instead of the service provider charging GST.
#### **Input Tax Credit (ITC):**
- **Eligibility for ITC:** Yes, you can claim Input Tax Credit (ITC) for the GST paid under RCM. This is allowed as long as the services are used for the business purposes and are not blocked credits.
- **ITC Claim:** You need to ensure that you fulfill the conditions specified for claiming ITC, including the correct accounting and documentation of the RCM transactions.
### 2. **Required Documents**
#### **For Payment of GST under RCM:**
- **Invoice from Unregistered Person:** While the unregistered supplier might not issue a GST invoice, you should obtain a document or a statement from them confirming the supply of services. The document should detail the nature of services provided.
- **Payment Voucher:** Prepare a payment voucher to document the payment made to the unregistered person. This should include details like the nature of the services, the amount paid, and GST applicable.
#### **For Claiming ITC:**
- **Self-Invoice:** Since the supplier is unregistered and does not issue a GST invoice, you need to issue a self-invoice or self-bill for the services received. The self-invoice should include details of the services received, the amount, and the GST paid.
- **Payment Proof:** Maintain proof of payment, such as bank statements or receipts, showing that you have paid the GST under RCM.
- **GST Payment:** Ensure that you pay the GST on the service received and report it in your GST returns under the Reverse Charge Mechanism.
### 3. **Reporting in GST Returns**
- **GSTR-1:** Report the details of the services received and GST paid under RCM in your GSTR-1 return. You should disclose the details of the supplies received from unregistered persons and the corresponding tax paid.
- **GSTR-3B:** Include the GST paid under RCM in the relevant sections of your GSTR-3B return. You can claim the ITC for the GST paid under RCM in the ITC section of the GSTR-3B return.
### 4. **Best Practices**
- **Documentation:** Keep thorough records and documentation of all transactions involving RCM to ensure that you have sufficient evidence in case of any audit or review.
- **Consultation:** Consult a GST professional or tax advisor to ensure compliance with the latest regulations and correct documentation practices.
### Summary
When receiving services from an unregistered person, you need to pay GST under the Reverse Charge Mechanism and can claim ITC for the GST paid. Ensure that you maintain proper documentation, including self-invoices and proof of payment, and report the transactions accurately in your GST returns. This approach helps in ensuring compliance and optimizing your tax position.
### 1. **Reverse Charge Mechanism (RCM)**
#### **Tax Payment:**
- **Reverse Charge:** If you receive services from an unregistered person or entity, you are liable to pay GST under the Reverse Charge Mechanism. This means you, as the recipient, need to pay the GST directly to the government instead of the service provider charging GST.
#### **Input Tax Credit (ITC):**
- **Eligibility for ITC:** Yes, you can claim Input Tax Credit (ITC) for the GST paid under RCM. This is allowed as long as the services are used for the business purposes and are not blocked credits.
- **ITC Claim:** You need to ensure that you fulfill the conditions specified for claiming ITC, including the correct accounting and documentation of the RCM transactions.
### 2. **Required Documents**
#### **For Payment of GST under RCM:**
- **Invoice from Unregistered Person:** While the unregistered supplier might not issue a GST invoice, you should obtain a document or a statement from them confirming the supply of services. The document should detail the nature of services provided.
- **Payment Voucher:** Prepare a payment voucher to document the payment made to the unregistered person. This should include details like the nature of the services, the amount paid, and GST applicable.
#### **For Claiming ITC:**
- **Self-Invoice:** Since the supplier is unregistered and does not issue a GST invoice, you need to issue a self-invoice or self-bill for the services received. The self-invoice should include details of the services received, the amount, and the GST paid.
- **Payment Proof:** Maintain proof of payment, such as bank statements or receipts, showing that you have paid the GST under RCM.
- **GST Payment:** Ensure that you pay the GST on the service received and report it in your GST returns under the Reverse Charge Mechanism.
### 3. **Reporting in GST Returns**
- **GSTR-1:** Report the details of the services received and GST paid under RCM in your GSTR-1 return. You should disclose the details of the supplies received from unregistered persons and the corresponding tax paid.
- **GSTR-3B:** Include the GST paid under RCM in the relevant sections of your GSTR-3B return. You can claim the ITC for the GST paid under RCM in the ITC section of the GSTR-3B return.
### 4. **Best Practices**
- **Documentation:** Keep thorough records and documentation of all transactions involving RCM to ensure that you have sufficient evidence in case of any audit or review.
- **Consultation:** Consult a GST professional or tax advisor to ensure compliance with the latest regulations and correct documentation practices.
### Summary
When receiving services from an unregistered person, you need to pay GST under the Reverse Charge Mechanism and can claim ITC for the GST paid. Ensure that you maintain proper documentation, including self-invoices and proof of payment, and report the transactions accurately in your GST returns. This approach helps in ensuring compliance and optimizing your tax position.
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