New RCM Time of Supply Rules Effective from November 1, 2024: Know About Changes and Compliance Requirements

Starting November 1, 2024, India’s Goods and Services Tax ( GST ) framework will introduce important updates to the Reverse Charge Mechanism ( RCM ) and time of supply rules which are aimed at strengthening compliance and ensuring timely tax reporting.

The Key Changes in RCM and Time of Supply Rules are:

Mandatory Self-Invoicing Requirement: Under the newly introduced Rule 47A of the CGST Rules, 2017, recipients obtaining goods or services from unregistered suppliers under RCM are now required to issue a self-invoice. This self-invoice must be generated within 30 days from the date of receipt of the goods or services.

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The purpose of self-invoicing is to ensure that recipients acknowledge their tax liability under RCM in a structured way, regardless of the supplier’s status. Failing to issue a self-invoice within the stipulated timeframe could lead to compliance issues and penalties, reinforcing the need for diligent invoicing practices.

Revised Time of Supply for Services under RCM: The time of supply determines when the liability to pay GST arises. For services under RCM, this timing has been redefined under the recent amendment to Section 13(3) of the CGST Act, 2017. The new time of supply is now based on the earliest of the following:

• The time of supply is the earlier date between when the payment is recorded in the recipient’s books and when the payment is debited from their bank account.
• If the supplier’s invoice is dated, the time of supply is set as 60 days after the invoice issue date.
• When the recipient of services is required to issue an invoice, the date of issuance becomes the time of supply.
• If it’s not possible to determine the time of supply under any of the above conditions, it defaults to the date of entry in the recipient’s books of account.
• For supplies from associated enterprises where the supplier is located outside India, the time of supply is the earliest of either the date of entry in the books of account or the date of payment.

This change shifts focus from the supplier’s side to the recipient’s payment record, emphasizing accountability on the recipient and requiring them to track payment dates closely.

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Implications for Businesses

Impact on Input Tax Credit (ITC):

Businesses are required to ensure the timely issuance of self-invoices to claim ITC on RCM transactions. Failure to comply with the 30-day window for self-invoicing could result in the loss of ITC eligibility, increasing the cost burden on businesses.

Since ITC claims rely heavily on correct documentation, businesses must make necessary adjustments in their accounting practices to accommodate these timelines. Setting up automated reminders or modifying accounting software to issue self-invoices on time can be an effective way to avoid any lapses.

Increased Compliance Requirements:

Adhering to the new 30-day rule for self-invoicing is crucial to avoid penalties and interest charges for delayed tax payments. These amendments are meant to prompt businesses to promptly record and declare their tax obligations. Delays can result in penalties, while compliance helps businesses avoid interest charges on delayed payments.

Get a Copy of “The Law of Goods and Services Tax : A Comprehensive Commentary”, Click here

Therefore, companies will benefit from updating their invoicing and payment tracking processes to match the updated requirements. Establishing internal controls for invoicing under RCM will help to maintain compliance and prevent any unnecessary financial liabilities.

Compliance Checklist for Businesses

To stay compliant with the new RCM and time of supply rules, businesses should:

1. Ensure systems are in place to capture payment dates accurately. The earliest date recorded becomes critical in determining the time of supply for RCM services.
2. Develop or adjust internal processes to generate self-invoices within the 30-day timeframe from the receipt of goods or services. Assigning responsibilities to specific team members may ensure this process is consistently followed.
3. Use accounting software or set up calendar alerts to issue self-invoices and track payment dates. These reminders can help prevent delays in compliance and avoid penalties.
4. Conduct training sessions to educate the relevant teams about these changes, ensuring they understand the implications of non-compliance on ITC and the potential for interest charges.
5. If using accounting software, check for updates or customizations that can accommodate the new rules, particularly for automated invoicing and payment tracking.

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