GST under reverse charge
This query is : Resolved
26 March 2020
Sir
Reverse charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply. Thus liability to pay GST to government is of Receiver of those Goods / Services.
Normally , Recipient is eligible credit of this gst paid under reverse charge , provided conditions mentioned in gst credit rules satisfies.
( Hence below will be the accounting entry in books -
Freight Expenses ----------- DR 100
GST Receivable -------------DR 5 - [Cr.eligible on payment]
Transporter ---------------------CR 100
GST Payable-------------------- CR 5 )
However in case where the final product of Recipient is exempt under GST , credit of gst paid under reverse charge will not be available.
In this case question arises whether "the liability to pay tax" means "responsible to bear the expense".
Whether recipient should treat gst paid under reverse charge as his expenses or he can deduct the same while making payment to transporter. In both the cases gst paid under reverse charge will remain same.
( In our example , below will be the 2 different views -
View 1.
Freight Expenses ----------- DR 105
Transporter ---------------------CR 100
GST Payable-------------------- CR 5
View 2.
Freight Expenses ----------- DR 100
Transporter ---------------------CR 95
GST Payable-------------------- CR 5)
Whether both of the above views are correct.
Any supporting explanation / notification in gst.
Kindly Advice,
Reverse charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply. Thus liability to pay GST to government is of Receiver of those Goods / Services.
Normally , Recipient is eligible credit of this gst paid under reverse charge , provided conditions mentioned in gst credit rules satisfies.
( Hence below will be the accounting entry in books -
Freight Expenses ----------- DR 100
GST Receivable -------------DR 5 - [Cr.eligible on payment]
Transporter ---------------------CR 100
GST Payable-------------------- CR 5 )
However in case where the final product of Recipient is exempt under GST , credit of gst paid under reverse charge will not be available.
In this case question arises whether "the liability to pay tax" means "responsible to bear the expense".
Whether recipient should treat gst paid under reverse charge as his expenses or he can deduct the same while making payment to transporter. In both the cases gst paid under reverse charge will remain same.
( In our example , below will be the 2 different views -
View 1.
Freight Expenses ----------- DR 105
Transporter ---------------------CR 100
GST Payable-------------------- CR 5
View 2.
Freight Expenses ----------- DR 100
Transporter ---------------------CR 95
GST Payable-------------------- CR 5)
Whether both of the above views are correct.
Any supporting explanation / notification in gst.
Kindly Advice,
26 March 2020
View 1 is right. See RCM provisions section 9(3). GST payable under RCM it can't be deducted.
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26 March 2020
Thanks , In case transporter agrees to bear , is the view 2 is acceptable then.
26 March 2020
Even by the agreement, the liability to pay RCM can not be shifted. Pass entry No. 1 and issue a debit note to GTA for discount. Secondly, why RCM @ 5%. The option to pay 5% without ITC is available only to GTA service provider and not to the recipient of GTA service.
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27 March 2020
Thanks for input - CA Suresh Jain.
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