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Published on:
February 20, 2023
By
Paramita

GST Liability on Purchases from Unregistered Dealers/Service Providers

Goods and Services Tax (GST) is an indirect tax that is levied on the supply of goods and services in India. It is a comprehensive tax that has replaced all other indirect taxes in India. GST is applicable on all goods and services that are sold or supplied in India. In this article, we will discuss GST liability on purchases from unregistered dealers/service providers.

When is GST Liability Applicable on Purchases from Unregistered Dealers/Service Providers?

As per the GST Act, if a registered dealer/service provider purchases goods or services from an unregistered dealer/service provider, then GST liability is applicable on the registered dealer/service provider. The registered dealer/service provider is required to pay GST under the reverse charge mechanism (RCM) on the value of such goods or services.

The reverse charge mechanism (RCM) is a mechanism under which the recipient of goods or services is liable to pay GST to the government instead of the supplier of goods or services. The RCM is applicable only in case of certain specified goods or services.

Rate of GST under RCM on Purchases from Unregistered Dealers/Service Providers

The GST rate under RCM on purchases from unregistered dealers/service providers is the same as the rate of GST that is applicable on the same goods or services when purchased from a registered dealer/service provider. For example, if the GST rate on a particular good is 18% when purchased from a registered dealer/service provider, then the GST rate on the same good when purchased from an unregistered dealer/service provider would also be 18% under RCM.

How to Calculate GST Liability on Purchases from Unregistered Dealers/Service Providers?

The GST liability on purchases from unregistered dealers/service providers can be calculated as follows:

1. Step 1: Determine the value of goods or services purchased from unregistered dealers/service providers.

2. Step 2: Calculate the GST rate applicable on the goods or services purchased. This will be the same as the rate of GST applicable on the same goods or services when purchased from a registered dealer/service provider.

3. Step 3: Multiply the value of goods or services purchased by the GST rate applicable on the same.

4. Step 4: Add any other applicable taxes, such as Cess, if any.

Input Tax Credit (ITC) on GST Liability on Purchases from Unregistered Dealers/Service Providers

Input Tax Credit (ITC) is a credit that can be claimed by a registered dealer/service provider for the GST paid on purchases made by them. However, in case of GST liability under RCM on purchases from unregistered dealers/service providers, the registered dealer/service provider is not eligible to claim ITC on the GST paid.

Conclusion

Purchasing goods or services from unregistered dealers/service providers can lead to GST liability for the registered dealer/service provider. The GST liability can be calculated based on the value of goods or services purchased and the applicable GST rate. The registered dealer/service provider is not eligible to claim ITC on the GST paid under RCM.

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Updated on:
March 10, 2023