Reverse Charge Mechanism
and GST Discount on Digital Payment to be Finalised in
21 July Meeting
A
final view on the Reverse Charge Mechanism (RCM) and GST discount on digital
payment is expected to be taken on July 8 at the meeting of the Group of
States’ Finance Ministers. If finalised, these
recommendations will be discussed during the 28th Meeting of the GST Council
scheduled on July 21.
The
Group, headed by the Deputy Chief Minister and Finance Minister of Bihar, Sushil Kumar Modi, has Finance Minister of Punjab, Manpreet Singh Badal, Finance Minister of Kerala, Thomas Issac,
and Finace Minister of West Bengal, Amit Mitra as members. The group met in April on RCM and May on
GST discount, but could not arrive at a consensus. Now, there is an expectation
that the Sunday meeting of GoM will give a concrete
proposal on both the issues for the GST Council.
Reverse
charge is a mechanism where the buyer of the good or service will have to pay
GST, which is otherwise paid by the seller. 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. The scheme may look simple, but generated enough
debate leading to the GST Council in its 22nd meeting held on October 6 to
defer it till March 31, 2018. It was also decided that the scheme would be
reviewed by a committee of experts. Date for suspension has been extended twice
and now the new date is September 30.
“There
are divergent views (on RCM). No doubt, there is need to ensure level playing
field for registered players, but there is a need to see that compliance cost
for small businesses does not increase,” a senior government official said. The
important issue here is tax incidence under RCM on asseessees
under composite scheme and non-composite scheme. While traders or dealer under
composite scheme have to pay GST at the rate of one per cent only, it is higher
for non-composite registered. There is a need to find a balance, he added. When
RCM was deferred for the first time last October, it was said that this will
benefit small businesses and substantially reduce compliance costs.
Sop for Digital Payment
The GoM will also discuss GST discount for digital payment.
Although, there is no consensus among States and it is unlikely that this will
go through, still the group has to formally submit recommendations accepting or
rejecting the proposal to the GST Council.
There
is feeling that the proposal is expected to benefit only those who are already
doing digital transaction. Also, incentive is not much to encourage people to
use digital means. Another problem is that with differential rates, there will
be a need to redesign the system which is again a tedious job.
Ceiling per transaction
The
proposal talks about providing “a concession of 2 per cent in GST rate on
Business to Consumer supplies, for which payment is made through digital mode
[one per cent each from applicable CGST and SGST rates, if the applicable GST
rate is 3 per cent or more] subject to a ceiling of ₹100
a transaction.” The scheme, however, would not be available to registered
persons paying tax under the composition scheme.