10 May 2019
And one more thing for clarification that the tax paid by composition dealer on Fright under reverse charge that it is also accumulated on Cash ledger of GST. Whether it is ok.
01 August 2024
In the context of GST, the treatment of tax paid under reverse charge, especially by a composition dealer, requires a clear understanding of the applicable rules and procedures. Here’s a detailed explanation:
### Tax Paid by Composition Dealer on Freight under Reverse Charge
1. **Reverse Charge Mechanism (RCM):** - Under GST, **Reverse Charge Mechanism (RCM)** means the recipient of goods or services is liable to pay GST instead of the supplier. This applies to certain categories of goods and services where the recipient is required to pay tax directly to the government.
2. **Composition Scheme:** - A **composition dealer** is a small taxpayer who opts for a simplified tax scheme under which they pay GST at a fixed percentage of their turnover and are not required to comply with the regular GST procedures. Composition dealers cannot claim input tax credit (ITC) on purchases.
3. **Tax on Freight under RCM:** - Freight services under RCM are generally applicable when the supplier of the freight service is not registered under GST, and the recipient is liable to pay GST. This applies to services like transportation of goods by road, among others.
### Treatment of RCM Tax Paid by Composition Dealer
- **Cash Ledger:** - Tax paid under RCM by a composition dealer is to be paid using the **Cash Ledger**. This is because composition dealers cannot claim ITC, and thus, the tax paid under RCM should be directly paid from their cash ledger. This is in line with the requirement for paying taxes, where even composition dealers are required to deposit the tax directly.
- **Accumulation on Cash Ledger:** - **Yes, it is correct** that the tax paid under RCM accumulates in the cash ledger of the composition dealer. Since composition dealers do not maintain an input tax credit ledger, the tax paid under RCM does not get adjusted against any credit but is simply reflected in their cash ledger.
- **Invoicing and Reporting:** - Ensure proper invoicing and reporting for any RCM transactions. The tax should be reported in the appropriate GST return (e.g., GSTR-4 for composition dealers).
### Key Points
1. **Compliance with RCM:** - Composition dealers must ensure compliance with RCM provisions and pay the applicable GST through their cash ledger.
2. **No ITC Claim:** - Composition dealers are not eligible to claim input tax credit, so the RCM tax paid does not get offset against ITC.
3. **Documentation:** - Proper documentation and adherence to GST compliance procedures are essential, including maintaining records of RCM transactions and payments.
### Summary
The tax paid by a composition dealer under RCM should indeed be reflected in the cash ledger. The composition scheme’s design means that these dealers cannot claim ITC and must manage their tax payments and compliance directly. Ensure adherence to all GST rules, and if in doubt, consult a tax professional for specific guidance tailored to your situation.
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