Reverse charge mechanism in Integra ERP as per the GST norms.

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Reverse Charge: Buying from Unregistered Dealers

Generally the SUPPLIER of goods or service is liable to pay GST. However in case of some notified categories of supply, Reverse charge is applicable. Under Reverse charge mechanism the liability to pay tax is on the RECEIPIENT of supply of goods or services or both instead of the supplier of such goods or services.

Reverse charge will apply if the below conditions are met:

• There should be a supply of goods or services
• Supply should be in respect of taxable goods/services
• Supply must be by an unregistered person.
• Supply must be to a registered person
• Supply must be an intra-state supply as compulsory registration is required for inter-state sales

When a person Registered under GST receives goods or services from an unregistered person intra-state, such intra-state supplies shall be exempted from Reverse charge provided however that the aggregate value of such goods or services or both received from one or more suppliers is less than Rs:5000 a day. In other words payment of Reverse charge is compulsory for all such supplies too if the aggregate value as explained above is Rs:5000/- or more.

Further explained in following illustration:

The following items in the P&L can attract GST under RCM:

• Rent
• Commission payments
• Printing and stationery
• Repairs and Maintenance
• Office Maintenance
• Vehicle maintenance
• Computer maintenance
• Legal Fees
• Consultancy Fees
• Professional Fees
• Audit Fees
• Freight and transportation expenses (GTA)
• Gift expenses
• Business promotion expenses
• Advertisement

GST under RCM will not apply on following items as currently these items are exempted from GST.

-          Salary and wages

-          Electricity

-          Interest

-          Car fuel (Diesel/petrol)

-          Government Fees (such as MCA fees, land registration fees etc.)

FAQ

Q. If a registered company spends Rs. 5,500 in a day on purchases from an URD (Un-registered dealer/person), should he pay GST via Reverse Charge Mechanism on Rs. 500 only?

A. No. Once the limit of Rs. 5,000 in a day is crossed, Reverse charge is payable on the entire amount of Rs.5,500 under RCM.

Q. If a registered company spends Rs:5500 in a day on purchases from a URD in which Rs:600/- were for exempted services, does he need to pay GST under RCM ?

A. If any exempted goods or supplies are procured intra-state such amount shall not be considered for the limit of Rs:5000/- and therefore RCM would not apply in this case as the amount attracting RCM in this case is only Rs: 4900 (5500-600).

Q. If a registered persons hires an autorickshaw, will the charges attract RCM?

A. No, as transportation of passenger in autorickshaw is exempted from GST

Q. If a registered person occupies an economy room in a hotel where the tariff is Rs:900 per day, will it attract RCM ?

A. No. Room tariff less than Rs:1000/- is exempted from GST and therefore RCM will not apply.

Q. If a bill of Rs:8000/- is received for vehicle maintenance from a URD, how GST under RCM is to be calculated ?

A. You will receive the bill without the element of GST.  The Registered person shall add applicable GST on Rs:8000/- and accordingly register it in the books of accounts and the GST so mentioned is to be paid to the Government.

Q. If a Registered person purchase an MRP item from a URD, how to calculate GST under RCM ?

A. There are two opinions for items with MRP purchased from URD. One opinion is that since the MRP is inclusive of GST, Registered person may reverse-calculate the GST included in the MRP and deduct the same from MRP to find the cost and GST element and the GST amount so arrived at is to be paid to Government. But here GST portal will not accept less payments. Another opinion is that GST may be calculated on the MRP itself and pay the GST accordingly to Government but in this case it will be double taxation. More clarity on such issues are expected.

Following are the occasions where the reverse charge is applicable in Integra ERP. 

Occasion 1:

Purchase of goods

Purchase of goods for resale or for consumption as raw material product from URD under purchase type “GST Reverse Purchase”

Occasion 2:

Cost incurred on purchase.  Setup purchase additions:

Path: setup -    Purchase – purchase addition and deduction

Select the radio button as bill wise 

Step 2              Enter the “More”  button in purchase voucher

Enter the percentage or amount of expense incurred for purchase and select the applicable GST slab. If the expense is payable to an URD put tick mark on “Reverse Tax” 

Occasion 3:

Inward service – other service purchased for the company.

For other expense comes under the profit and loss account, a new voucher format has been incorporated in accounts as “Inward service Entry”.  All users are advised to use this voucher to enter such expense where the GST is applicable and wants to take Input credit of such amount.

Path: Voucher – Accounts  - Inward service

Step 1

Explanation: Service provider will be treated as vendor hence advised to create vendor in

·         purchase module. (setup – purchase – Vendor)

·         Select appropriate GST head (purchase type)

·         GST purchase: If the service availed from the supplier (Vendor) within the state.

·         IGST purchase:  If the service availed from the supplier (Vendor) Outside the state.

·         GST Reverse purchase: if the service availed from the unregistered supplier (Vendor) within the state.

User should ensure the correctness of vendor GSTN, bill number, date of bill and selection of appropriate GST tax slab. 

Particulars	Debit	Credit
Purchase from unregistered supplier - GSR Reverse Purchase
A.G.M MODERN RICE MILL		8500.00
GST REVERSE PURCHASE	8000.00
Freight Inward	300.00
Unloading charges	200.00
SGST ON REVERSE PURCHASE		260.00
CGST ON REVERSE PURCHASE		260.00
REVERSABLE SGST	260.00
Being reversible tax
REVERSABLE CGST	260.00
Being reversible tax
Service Purchase from registered dealer form outside state- IGST Purchase
Vodafone		5900.00
Being  Inward Service entry against Voucher No. 1. Bill No. 3234/08/2017.
TELEPHONE CHARGES	5000.00
Being Inward Service entry against Voucher No. 1. Bill No. 3234/08/2017.
IGST	900.00
Being I Inward Service entry against Voucher No. 1. Bill No. 3234/08/2017.
GST Service
Service Purchase from registered dealer form state- GST Purchase
A.A RAPPAI RICE MERCHANT		4480.00
Being  Inward Service entry against Voucher No. 2. Bill No. 33333.
DIESEL EXPENSES	4000.00
Being  Inward Service entry against Voucher No. 2. Bill No. 33333.
GST - SGST	240.00
Being  Inward Service entry against Voucher No. 2. Bill No. 33333.
GST - CGST	240.00
Being Inward Service entry against Voucher No. 2. Bill No. 33333.
Service Purchase from unregistered dealer form state- GST Reverse Purchase
A.A RAPPAI RICE MERCHANT		6000.00
Being Inward Service entry against Voucher No. 3. Bill No. 4334234/12/33.
SGST ON REVERSE PURCHASE		840.00
Being Tax on Reverse Purchase credited.
CGST ON REVERSE PURCHASE		840.00
Being Tax on Reverse Purchase credited.
ACCOUNT WRITING	6000.00
Being Inward Service entry against Voucher No. 3. Bill No. 4334234/12/33.
REVERSABLE SGST	840.00
Being Reverse Tax receivable.
REVERSABLE CGST	840.00
Being Reverse Tax receivable.

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