Beware!! The danger of purchasing from unregistered person in GST

Beware!! The danger of purchasing from unregistered person in GST

Hello friends, I read a article of CA Umesh sharma somewhere I really like the way in which he explain the whole reverse charge mechanism in case of purchase of goods from unregistered dealers. I thought it is good to share this article of Mr. Sharma because the  ultimate purpose of my blog is to enhance the knowledge of my bloc viewers. here is the article of CA Umesh Sharma

Arjuna (Fictional Character): Krishna, from various peculiar provisions of GST the provision of RCM comes. According to this RCM provision what will happen if purchases are made from unregistered person?

Krishna (Fictional Character): Arjuna, The provision of reverse charge is already in service tax and the same provision is brought in GST. In service tax there are only specified persons who were required to pay tax on reverse charge basis but in GST all the persons are required to pay tax on reverse charge on purchase of goods and services.

Arjuna: Krishna, What is meant by R.C.M?

Krishna: Arjuna, R.C.M means reverse charge mechanism which means that tax on purchase of goods or services has to be paid by the recipient. In simpler terms R.C.M means paying tax of the other person. Which transaction will be covered in RCM has been specified.    

Arjuna: Krishna, What if a taxpayer purchases goods or services from an unregistered person?

Krishna: Arjuna, if a registered person purchases goods or services from an unregistered person then the registered person has to pay tax on such purchases. For Ex. If a registered person purchases Tea from an unregistered person and if such expenses are accounted in the books of account then the registered person has to pay tax on such payment. Everyday a businessman incurs various transactions with unregistered person, now because of R.C.M the registered dealers has to pay tax on such purchase. Composition Dealers are also required to pay tax on reverse charge on purchases from an unregistered person. Further the dealer have to give the details of purchases from unregistered person in the monthly return.

Arjuna: Krishna, what will be the time of supply in case purchase of goods in Reverse charge mechanism?

Krishna: Arjuna, The time of supply for purchase of goods in reverse charge mechanism will be the earlier of the following-

The date of receipt of goods or
Date on which payment is made or
The date immediately following 30 days from the date of issue of invoice
For Ex. If a taxpayer purchases stationary from an unregistered person on 25th July 2017 and he provides the bill for the same on 2nd August 2017 and if the consideration is paid on 28th August 2017, then according to the provisions of RCM the time of supply will be 25th July 2017.

Arjuna: Krishna, what will be the time of supply in case of services in Reverse charge mechanism?

Krishna: Arjuna, The time of supply for services in reverse charge mechanism will be the earlier of the following-

The date on which payment is made
The date immediately following 60 days from the date of issue of invoice
Arjuna: Krishna, whether credit of GST paid in RCM will be allowed?

Krishna: Arjuna, Every taxpayer can avail credit of tax paid on Reverse charge mechanism but he has to pay tax first then he can avail credit on such purchase in the next month. As per the provisions of GST credit cannot be availed on food and beverages, building, passenger vehicle even if tax is paid on R.C.M basis that means the burden of such tax shall be borne by the taxpayer. For Ex- If a businessman has purchased food beverages of Rs. 20,000/- from unregistered person and paid GST in RCM of Rs. 2,400 then credit shall not be available on such goods and Rs. 2400/- will be added to the cost of the businessman.

Arjuna: Krishna, what one should learn from the provisions of reverse charge mechanism of GST?

Krishna: Arjuna, because of this provision in GST the number of registered persons will increase. Purchase from an unregistered person can prove costly for any registered person. Every person has to look at his expense side of profit and loss account every month and has check if there are purchases from any unregistered person because that will attract reverse charge. Hence business has to be done very carefully, in case of any mistake interest and penalty will have to be paid on such purchase. The provisions of RCM will affect drastically on small traders, service providers like Plumber, repairs maintenance person etc.

I hope you guys find it hhelpfull. I also thanks to Mr. Sharma for such a good article.

Stay connected and follow my blog akashjaindiwan.blogspot.com for more updates.you can also mail me your queries on my mail id akashjain070@gmail.com.

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GST: A Introduction

GST: A Introduction

GST: Goods and Services Tax

Finally wait is over from 1st july 2017 GST is applicable in full fledged manner in India. I study a little about GST and want to share my knowledge. This article explains GST and its impact in a simplified manner.

What is Goods and Services Tax (GST)?

GST is a single tax that will replace all the existing indirect taxes levied in India. These taxes include Sales tax (VAT), Excise duty (CENVAT), Service tax, Octroi, Entertainment tax, Luxury tax etc.

GST is proposed to have a dual structure. It will have two components: Central GST and State GST. Central GST will replace Central excise duty, services tax and additional customs duties etc. and will be levied by the centre. State GST will replace VAT, Central State Tax, entertainment tax, luxury tax, lottery tax, electricity duty etc. and will be levied by the states.

GST will be charged on the value-added at each stage of sale/ purchase in the supply chain.

Lets just take an example for better understanding-: Assume the GST rate is 10 %. A chipsmanufacturer buys raw materials worth Rs. 10 (potatoes etc.), makes chips andsells it to a retailer at Rs 20. The value-added by the Chips manufacturer is Rs. 10 (20-10). Thus, GST payable by him is Re. 1 (10 % of 10). Similarly, if theretailer sells the chips to final consumers at Rs. 25, the value-added by him is Rs. 5 (25-20). The GST payable by the retailer is Rs. 0.5.

 There are always some exceptions. These are: petroleum product, Entertainment and amusement tax levied and collected by Panchayat/ Municipality/ district council, alcohol, stamp duty, customs duty, tax on consumption and sale of electricity.

What are the benefits of GST?

GST has been adopted by around 140 countries around the world. It’s benefits are:

1. Simplified tax practice: Currently there are multiple indirect taxes (around 15) levied by the Central and the State Government and they differ across states. GST will simplify and rationalise the tax structure of India by bringing in a regime of a single and uniform tax.

2.Increased revenues: There is no doubt about that the revenue of govt will increase in future. A simple tax regime will reduce the cost of compliance and hence increase the number of taxpayers. All the procedure's became online hence no bribes😎.

3.Reduce the cascading effect of taxation: As mentioned earlier, GST is a uniform tax levied on value-added. Levy at each stage of sale/ purchase will be set-off against taxes paid by the supplier in the previous stage. Through this set-off mechanism, GST is levied only on value-added. To illustrate: Let’s say GST is 10 %. Continuing with our earlier example, if you make a packet of chips (manufacturer) and sell it for Rs. 20, your GST should come out to be Rs 3 (10 % of Rs. 30). But, this tax is levied only on value-addition and so you’ll be allowed to claim a tax credit to the value of GST already paid by the supplier in the previous stage.

4.Improve ease of doing business: Currently, doing business across state borders is very difficult due to differences in tax procedures. GST will lead to a unified economy and allow businesses to expand its operations with ease. It will alsoimprove manufacturing in India, attract foreign investment and lead to job creation because all the foreigners find GST friedly because mostly countries already adopted GST and reduce the unnecessary compliance's. The founder of Flipkart, Sachin Bansal has described GST as a reverse brexit moment for India.

5.Boost GDP: The economists forecast that the roll-out of GST will boost GDP by 0.5%-2%. This is because of the positive impact on tax revenues and economic effects of a unified tax regime.

Disadvantages of GST:-

While it has many inherent benefits, following are the main flaws of GST as it is being implemented in Bharat -

1. Difficulties in understanding GST- very few people understand the GST Laws even professional like C.A. and advocate s finding difficulties in understanding new law and bussinessman have no idea about compliance's. It takes lots of effort to understand the law for noth professional's and businessman

2.Onus of ITC on dealers - this is going to cause a huge amount of lnconvinience.

3.ITC mismatch - very short time spans mean it's going to lead to dealers paying more tax upfront and getting into the procedural difficulties of claiming refunds.


4. Increased cost of services: The Service Tax in India is now 15% but the proposed GST is about 18-20%. so all the services will be Costlier.


Benifits for Tax Professional's:

Being a completely new tax, businesses and professionals will approach CAs to help them to be GST compliant, to file the new GST returns.

Businesses having turnover limit more than the prescribed amount (Rs. 1 crore as per Draft Rules) will have to get their accounts compulsorily audited by CAs under GST.

These will boost business of CAs and generate a greater market demand for CAs.

Other benefits-

Many CAs are publishing articles, speaking, giving seminars to educate everyone regarding GST. This brings in more newer opportunities for CAs.

GST law is very hudge and takes time to understand . In this article i just give a brief introduction and pros and cons of GST.
I My blog help you,I am coming back with an another article just stay connected and follow my blog "All about Chartered Accountant's (C.A.)".You can also contact me on my mail akashjain070@gmail.com. Cheer's!!!