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Tax on Reverse charge in case of composition scheme

30 December 2017

Hi,
I'm registered in gst as a composition dealer and my shop taken on rent from ungistered person.
So will I have to pay gst on rent or not????
bcoz I heard that in composition scheme tax liabilities arise only on Total turnover.

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8 Replies

Dixit (CA Final) (2405 Points)
Replied 30 December 2017

Yes you are right regarding your views but in GST if you received goods or services from unregistered dealer then you should pay tax in RCM whether you are regular dealer or composition dealer

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Bharat Kumar (94 Points)
Replied 30 December 2017

I mentioned inward supplies from unregister person in spreadsheet 4C of GStr-4 offline utility and 6 of GSTr-4 but

Bharat Kumar (94 Points)
Replied 30 December 2017

Tax liabilities calculated automatically on total turnover only .
kindly suggest me that how to pay tax on RCM under composition scheme and what % will be consider on rent 18% or 1% ???

Dixit (CA Final) (2405 Points)
Replied 30 December 2017

for rent it will be pay 18%

Bharat Kumar (94 Points)
Replied 30 December 2017

how will pay 18% in composition scheme when input credit will not available on that....

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SUSHIL SINHA (68 Points)
Replied 30 December 2017

RCM under section 9[4] has been deferred

SUDHIR KUMAR (CA) (111 Points)
Replied 31 December 2017

Sushil Sinha ji veiw is right

Ajay (CA Job) (512 Points)
Replied 13 January 2018

Dear Bharat Kumar

Before giving the final answer, a few legal provisions to be noted are as follows:

As per Sec. 10(1) of CGST Act, 2017, Composition Scheme is applicable only on "outward supply" (that is, on your total turnover/sales).
The rent that you pay to the unregistered landlord of your shop is an "input service".
Further, as per Sec.10(1), Composition Scheme is not applicbale while paying tax, if any, on your input service (that is, rent) which are subject to Reverse Charge Mechanism (RCM).
As per Sec.10(4), a dealer who has opted for composition shceme cannot avail Input Tax Credit (ITC). Tax, if any, that you pay on rent is an "input tax". However, being a dealer who has opted for composition scheme, you cannot avail this tax paid as ITC.
As per Sec.9(4), a registered person (including a dealer like you who has opted for Composition Scheme) has to pay tax on any taxabale goods/service that you have purchased/availed from an UNREGISTERED dealer.
However, vide Notification No.8/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No.38/2017-Central Tax (Rate) dated 13.10.2017, all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST till 31.03.2018 irrespective of the amount of goods/services purchased/availed from an unregistered dealer.
Tax under RCM can be paid only through Electronic Cash Ledge and not by utilizing Electronic Credit Ledger. That is, it has to be paid in cash only. ITC available cannot be used to pay tax under RCM. This is because, by definition, tax paid under RCM is an “input tax” and not an “output tax”. ITC can be used to pay only “output tax” and not “input tax”. [For relevant definitons, see Sec 2(62)/(82)]. However, as explained in "point d" above, you being an dealer under Composition Scheme will have no ITC available and so there no question of even paying your "output tax" under Composition Scheme @ 1% using ITC.

Now to answer your query in the light of the above provisions:

Present Positon (Till 31.03.2018) - You are not required to pay tax on the rent for your shop paid to your unregistered landlord.

Future Position (after 31.03.2018) - You will have to pay tax on rent @ 18% in cash. Also, being a dealer under Composition Scheme, you will NOT be able to take ITC for such 18% tax paid to adjust against your output tax liability that you pay @ 1%.

Do consult a practicing CA for more practical solutions and clarifications.

Please anyone correct me if I am wrong.

Regards

Ajay