Exemption from Reverse Charge to persons under GST Composition scheme

Under the Goods and Services Tax (GST), the Reverse Charge Mechanism (RCM) is a system where the recipient of goods or services is responsible for the payment of tax instead of the supplier. However, there are certain exemptions granted to persons registered under the Composition Scheme. In this article, we will discuss the exemption from Reverse Charge to persons under the GST Composition scheme.

What is the GST Composition Scheme?

The GST Composition scheme is a scheme for small businesses that allows them to file quarterly returns and pay a fixed percentage of their turnover as tax. The scheme aims to reduce the compliance burden on small businesses and encourage them to formalize their businesses.

What is Reverse Charge Mechanism under GST?

In a normal scenario, the supplier of goods and services is responsible for the payment of tax. However, under the Reverse Charge Mechanism, the liability of paying tax is shifted to the recipient of goods or services. The RCM is applicable when a registered person buys goods or services from an unregistered person or a person registered under the Composition Scheme.

Exemption from RCM for persons under the Composition Scheme

Persons registered under the Composition Scheme are exempted from the Reverse Charge Mechanism. This means that they are not liable to pay tax under the RCM for goods or services received from an unregistered person or a person registered under the Composition Scheme. The liability to pay tax under the RCM lies with the supplier of goods or services in such cases.

Conditions for availing exemption from RCM

There are certain conditions that need to be fulfilled in order to avail exemption from the Reverse Charge Mechanism under the Composition Scheme. These conditions are:

The supplier of goods or services should be registered under the Composition Scheme.
The recipient of goods or services should also be registered under the Composition Scheme.
The aggregate turnover of the recipient of goods or services should not exceed Rs. 1.5 crore in the preceding financial year.

Impact of exemption from RCM for persons under the Composition Scheme

The exemption from the Reverse Charge Mechanism for persons registered under the Composition Scheme is a relief for small businesses. It reduces their compliance burden and ensures that they do not have to pay tax on purchases made from unregistered persons or persons registered under the Composition Scheme. This will encourage small businesses to formalize their businesses and register under the Composition Scheme.

Conclusion

The exemption from the Reverse Charge Mechanism for persons registered under the Composition Scheme is a significant relief for small businesses. It reduces their compliance burden and encourages them to formalize their businesses. However, it is important to note that the exemption is subject to certain conditions and businesses must ensure that they fulfill these conditions in order to avail the exemption.