TAXES UNDER RCM

[Renju Joy]

What is the actual benefit to govt on taxes paid under RCM other than presumptive tax payers paying such taxes. There is no loss of revenue when such taxes are not paid.

Thanks & Regards

[KASTURI SETHI]

(i) The major purpose is to plug the leakage of revenue.

(ii) More revenue in cash.

(iii) Each transaction will be accounted for in the books of accounts.

(iv) Supply from unregistered person will be accounted for.

(v) It increases number of registrants

(vi) It is a facility to those persons who are not required to register under GST are not required to pay GST under RCM.

(vii) Those persons supplying services where service recipient is liable to pay GST under RCM, are not required to get registered themselves under GST.

[Ganeshan Kalyani]

Dear Querist, can you please let us know , "how there is no loss of revenue when such taxes are not paid"?

[Renju Joy]

ITC is claimed except by composition dealers

[Ganeshan Kalyani]

Sir, the tax paid under RCM may not be creditable to some tax payers whose outward supplies are exempt. Also, in case of RCM paid on rent-a-car is ineligible. In all these, the govt. gets the revenue.

[Renju Joy]

No need to pay RCM on exempted services

[SRIVALSAN MENON]

As the experts rightly suggested, the advantages are :

1. Possibility of every transaction going to pass through a checkpoint

2. Bringing in more assessees into compliant business models

3. Smaller invoicers, though not registered under GST can still become contributors to the GST system

4. The data becomes a repository which can be later used by income tax to find out highly granularised incomes adding up to huge values and eventually converting them to IT assessees also

5. Smaller invoicers neednot worry about tax payments but just file the returns alone.

6. Large invoicees need not worry about their small invoicers filing their GSTR 1 so that their 2A is populated correctly or manually follow up on large numbers. There is also a slight injustice here as the system favors fund accumulation with large invoicees during the gestation period which would have otherwise been with the small invoicers, naturally larger in number and facilitating better economic dynamics in the financial ecosystem.

Disadvantages for assessees who provide services on RCM:

1. They will need to wait for long periods for refund of ITC while their input credits accumulate but would not have tax liability.

2. They will lose the opportunity of using a workable float amount which may otherwise have remained in their business for some 20 to 50 days.

Disadvantages for the Government:

1. Govt loses a huge amount of float, of course for a time of 1 month, which would have been paid in as GST otherwise. Now that Invoicees can take ITC of the RCM taxes due from them in the same month, there is no actual movement of money into the taxes box.

AI Summary

Reverse Charge Mechanism shifts tax liability to the recipient, increasing registrants and improving revenue visibility and compliance. Reverse Charge Mechanism under GST shifts tax liability to the recipient for specified supplies, aiming to prevent revenue leakage by bringing transactions from unregistered suppliers into recorded accounts, increasing registrants, and enabling recipients to claim input tax credit where eligible; this expands revenue visibility while producing timing, liquidity and administrative impacts including possible ineligible credits, refund delays, and reduced cash float.