RCM ON EXPENSES DECLARE IN PROFIT & LOSS ACCOUNT

[MAHTAB KHAN]

Received SCN from GST Dept. They asked to clarify RCM liability on expenses like Freight, Power & Fuel, Salary, Labour Charges, Staff Welfare, Insurance, Traveling, Conveyance, Telephone, Audit Fee, Accounting, Legal, Misc., Shop, Bank Charges, Printing & Stationery.

Also asked to explain treatment of Rebate & Discount received with evidence.

?? Which of these expenses actually attract RCM? And how to justify rebate/discount before dept?

[Sadanand Bulbule]

Most of the above listed expenses do not attract RCM. Only notified items under Section 9(3) & 9(4)  like GTA freight, legal services from advocates, security services (if applicable) and certain imports would attract RCM. Rest of the listed expenses fall under FCM.

For discounts/rebates, maintain agreement, invoices, and credit notes as proof.

[Shilpi Jain]

The aspect of rebate and discount may have been asked to check if they could tax it as a service income for any additional activities / effort done/put in for the seller.

Though if you can show that this discount or rebate is related to the trade of goods then no GST liability should attract.

[Shilpi Jain]

With regard to RCM you can inform the nature of the expenses to the officer and link them with the RCM notification to show that none of these are covered under it.

Though pay attention to expenses like freight and legal expenses. Shop rent if paid to unregistered person now will be RCM though this did not exist earlier.

[Harshaditya Kabra]

Expense	RCM Applicability	Notes
Freight	Yes (if GTA, i.e., Goods Transport Agency, by road)	RCM applies at 12% GST if a consignment note is issued and service is by GTA. Recipient pays GST.
Power & Fuel	No	Not under RCM unless specific notified service is availed.
Salary	No	Employment services are outside GST scope.
Labour Charges	Yes (if availed from unregistered supplier)	If availed from unregistered vendor, RCM applies. Otherwise, if registered vendor charges GST, RCM doesnt apply.
Staff Welfare	No	Unless the service availed falls under a notified RCM category.
Insurance	Yes (in specific cases)	RCM applicable if insurance agent provides services to an insurance co..
Traveling	No (for regular booked tickets)	Exception: If availing notified services (e.g., renting motor vehicle from non-body-corporate), see below.
Conveyance	No	Normally not under RCM unless specific arrangements.
Telephone	No	Telecom services generally under forward charge.
Audit Fee	Yes (if paid to individual advocate/firm for legal services)	Legal/advisory/consultancy by advocate firm, body corporate client pays under RCM. Audit (CA/CMA) not under RCM.
Accounting	No	Not in RCM category.
Legal	Yes (see Audit Fee)	Always clarify nature of "legal" service and vendor status.
Miscellaneous	Depends	Only if service falls in notified RCM list.
Shop, Bank Charges	No	Unless related to notified services like recovery agent for banks.
Printing & Stationery	No	Not under RCM unless it is a notified service (like service from author/copyright etc.)

[Ganeshan Kalyani]

I agree with the view of the experts. Most of the expenses mentioned in your query do not attract RCM applicability. 

AI Summary

Reverse Charge Mechanism applies to notified services like GTA and legal services; other business expenses remain under forward charge. Most listed operating expenses do not attract RCM and remain under forward charge; RCM is confined to services notified under Section 9(3) & 9(4) such as GTA freight (subject to consignment note conditions), specified legal services, security services where notified, certain imports and services from unregistered suppliers. Items like freight, legal fees, insurance-agent services to insurers and rent to unregistered persons require vendor-status analysis. Rebate and discount adjustments must be supported by agreements, invoices and credit notes and linked to the trade of goods to avoid being treated as separate taxable service income.