Reverse Charge Mechenism (RCM) under Goods and Services Tax (GST), necessitating payment of GST by the buyer when goods or services are bought from unregistered dealers, is likely to be abolished, say representatives of traders. However, a senior official local tax department denied knowledge about the move.
Under GST when buyers and sellers are registered with the government, the seller collects the tax from the buyer and deposits it in government treasury.
However, many small time suppliers are not required to be registered as their turnover is below the prescribed threshold and are therefore not entitled to collect and deposit tax.
But a buyer from unregistered dealer has to pay tax and in turn gets refund, which is called Reverse Charge Mechanism (RCM). The motive here is to ensure that none of the eligible dealers are left unregistered.
RCM does not result in tax gain for the government but the taxpayer has to maintain records of purchases from unregistered dealers, pay the tax and then get the refund, which is a tedious process. “Abolition of RCM will remove this burden from the tax-payer, said the tax representative,” said a prominent office bearer in Gujarat of a national level association of businessmen.
RCM was to come into force from April 1, 2018. However, it got postponed a number of times. Recently the government postponed it till September 30. Now trade representatives say the government will abolish it altogether.
A Group of Ministers (GoM) has been reviewing RCM. “The GoM has recently decided to abolish RCM. It will soon submit the decision to GST Council, which will announce the decision during upcoming meeting of GST Council on July 21,” said the representative.
HOW IT UNFOLDS
- Under GST when buyers and sellers are registered with the government, the seller collects the tax from the buyer and deposits it in government treasury
- However, many small time suppliers are not required to be registered as their turnover is below the prescribed threshold and are therefore not entitled to collect and deposit tax
