Liability to pay GST in certain cases under Revised Draft GST Law

In the Revised Draft GST Law, the liability to pay GST in certain cases has been elaborated. The new law specifies the cases where the liability to pay GST is on the recipient of goods or services instead of the supplier. These cases are called ‘reverse charge mechanism’ (RCM). The objective of introducing RCM is to bring more accountability to the recipient and to curb tax evasion.

What is Reverse Charge Mechanism (RCM)?

Reverse Charge Mechanism (RCM) is a mechanism where the recipient of goods or services is liable to pay GST instead of the supplier. In other words, instead of the supplier, the recipient is responsible for the payment of GST. The supplier will not be required to pay GST in such cases.

Liability to pay GST under RCM

The following are the cases where the liability to pay GST is on the recipient of goods or services under RCM:

1. Services provided by a Goods Transport Agency (GTA) to a registered person.

2. An individual advocate or firm of advocates to a business entity, i.e., where the recipient is a business entity and the supplier is an individual advocate or firm of advocates.

3. An arbitral tribunal to a business entity, i.e., where the recipient is a business entity and the supplier is an arbitral tribunal.

4. The Central Government, State Government, Union Territory or local authority to a business entity, i.e., where the recipient is a business entity and the supplier is the Government or local authority.

5. A director of a company or a body corporate to the said company or the body corporate.

6. Insurance agent to any person carrying on insurance business.

7. Recovery agent to a banking company or a financial institution or a non-banking financial company.

Impact of RCM on Small and Medium Business Owners and Startups

Small and medium business owners and startups may face some challenges with RCM. They have to take into account the additional time and cost associated with compliance with the RCM provisions. It may also increase their working capital requirement as they have to pay GST in advance. On the other hand, it may have a positive impact on the GST system as it brings more accountability to the recipient and curbs tax evasion.

Conclusion

The Revised Draft GST Law has elaborated the cases where the liability to pay GST is on the recipient of goods or services instead of the supplier. The introduction of the Reverse Charge Mechanism (RCM) aims to bring more accountability to the recipient and curb tax evasion. Small and medium business owners and startups may face some challenges with RCM, but it may have a positive impact on the GST system.