GST on purchases from unregistered purchases
By: – Naimish Padhiar
Goods and Services Tax – GST
Dated:- 2-8-2017
Reverse Charge Mechanism under GST and implications of exemption upto ₹ 5000 per day
Let's look at the critical provisions of the GST law which have enabled reverse charge mechanism :-
Compulsory Reverse Charge even if the supplier is registered –
Sec 9(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
The above section primarily covers services availed from Goods Transport Agency, Lawyer, government, corporate sponsorship, director etc.
Reverse Charge if the supplier is unregistered –
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eceived by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.
To sum up, the supply should be intra state supply (within the state) and can be for goods as well as services or both. Moreover the supply should be received by the registered person from an unregistered dealer only and upto a daily limit of ₹ 5000/-
Example:-
Mr. X purchased following items from unregistered dealer, all are dated 01.07.2017 as under:
1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Lunch = 1000/-
3rd bill – From Madhu : Books = 3000/-
In this case, The bills of Mr. X will not get covered under this notification as aggregate value of all supplies exceeds 5000/- on a single date (01.07.2017)
Exemption would have been available if,:
1) Bill dates are different (So that it will come under 5000/- day limit, say bill date of Ram is 02.07.2017)
2) Any of the bills are 1000/- less than the mentioned value(Say Bill
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charge is payable u/s 9(3) without any exemption threshold.
Whether this daily limit benefits would be available if the goods/services received from persons covered under 9(4) are blocked credits?
The benefit of daily limit would be available. Output Tax under reverse charge would be payable if it crosses the daily limit even though they are covered under blocked credits.
What if the limit crosses 5000 in a day, is GST payable over and above the value or from rupee 1?
If the value of taxable supplies exceeds ₹ 5000 per day for all suppliers, then GST would be payable on the Total value of the supplies received from unregistered persons.
Is this limit applicable to all supplies?
The limit is applicable to only taxable supply of goods or services or both. Exempt supplies are out of the perview of this notification.
Mr. X purchased following items from unregistered dealer, all are dated 01.07.2017 as under:
1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Ho
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ot applicable on such supplies.
Can credit be availed for these taxes paid and on what basis, any invoice issue requirement?
Credits can be availed on payment of GST in cash. A consolidated monthly tax invoice can be raised if supplies are received from a single vendor. The Invoice shall be raised on the date of receipt of goods or services or both. Also a payment voucher needs to be issued on the date of making any advance payment as the time of supply is invoice of payment whichever is earlier.
We have compiled the daily expenses which would be liable to GST if procured from unregistered supplier as below:-
Sr. No.
Nature of Expenses
GST Rate
GST IMPACT / OTHER REMARKS
Supplies from UR (RCM Applicable)
No GST / NIL GST or EXEMPTED :-
1
Electricity Charges
0%
Out of GST
2
Water Charges
0%
Out of GST
3
Bank Interest
0%
Out of GST
4
Professional Tax
0%
Tax levied by local body / other association out of GST
5
License renewal like Pollution,
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ution shall be allowed
18
Warranty Labour Charges
0%
If there is no supply element & no consideration
19
Donation
0%
If there is no supply element & no consideration
20
Labour Welfare Fund Contribution
0%
Out of GST
21
Staff Medical Expenses
0%
Exployee service without any margin
22
Fine & Penalities by Government
0%
Out of GST
23
Discounts – shown in bill
0%
GST applicable is after all discount
– if shown in the bill
24
Free Gifts, Gold Coin to Customers
0%
25
Interest on Service Tax/ TDS
0%
26
Interest on Vehicle Loan
0%
27
Interest Others
0%
28
Local Conveyance
0%
29
Transportation Charges – Non GTA / Trucks
0%
GST Applicable & No ITC :-
28
Food Expense
12% /
No ITC
29
Travel claims – Radio Taxi (Rent-a-cab)
5%
No ITC
30
Transportation Charges – GTA
5%
No ITC
31
Club & Membership fees
18%
No ITC
32
Life Insurance Exps for Employees
18%
No ITC
33
Work Contract Service
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arges
18%
50
Insurance Charges
18%
51
Legal charges to advocate
18%
Advocate raise bill without GST component – RCM to us
52
Loading & unloading Charges
18%
53
Local Conveyance
5%
/ 12%
54
Mediclaim Policy Premium Contribution A/ c
18%
55
Mobile Allowance
18%
Pure Agent Service / If margin then GST applicable
56
Other Training Expense
18%
57
Postage and Courier Charges
18%
Subject to certain exemptions
58
Printing & Stationery(Flex Printing, Broad Printing, Notice Printing)
18%
59
Rates and Taxes
Actuals
Depends on case to case basis
60
Recruitment Expenses
18%
61
Rent Paid
18%
62
Rent Paid for Mess (Employees)
18%
63
Repair and Maintenance – Building / Electrical / P& M
/ Others
18%
64
RTO Expenses
18% or
28%
65
Sales Promotion – Others / SSI / Display
18%
66
Sponsorship services
18%
Reverse Charge to Service Receiver
– ITC can be availed
67
Security Charges
18%
68
Sta
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