GST: GoM to meet Today to discuss Implementation of Reverse Charge Mechanism

GST RCM - Reverse Charge Mechanism

In order to deliberate the implementation of reverse charge mechanism as part of tackling tax evasion, under GST, a Group of Ministers (GoM) to meet today along with a panel of government officials.

In the last meeting, Goods and Services Tax (GST) Council had decided to defer reverse charge mechanism (RCM) till June 30. However, some states have insisted to re-introduce the same to curb revenue leakage.

Bihar Finance Minister Sushil Modi, Punjab FM Manpreet Singh Badal, Kerala FM Thomas Issac, among others are part of the GoM.

“Some states were insisting on bringing back reverse charge mechanism. On Monday, we will decide on the exact shape and form if we decide to re-introduce it,” a senior government official told.

“We need to explore if RCM can be brought back with some tweaking in the rules. For instance, it could be applicable for only a particular category of taxpayer. Or there could be some kind of monetary exemption for which tax (on reverse charge basis) may not have to be paid,” another official said.

Earlier in January, the GST Council decided to re-introduce RCM, but only for dealers under composition scheme.

Under reverse charge mechanism, the service tax on specified services can be collected directly from the service recipient instead of collecting it from the service provider.

The charge is applicable on a registered dealer, if he buys goods from a dealer not registered under GST. However, the receiver of the good is eligible for input tax credit, while the unregistered dealer is not.

Registered taxpayers (supplier) were not willing to take the burden of paying tax, while small or unregistered taxpayers were running out of business as these registered dealers were hesitant to buy goods from them. Keeping this in mind, GST Council in October had temporarily suspended RCM, as it was increasing compliance burden on taxpayers.