GST: GoM, officials’ panel to deliberate on bringing back reverse charge mechanism

A Group of Ministers (GoM), along with a panel of government officials will meet today to deliberate on bringing back the liability to pay tax on reverse charge mechanism under GST, as a part of a larger plan to curb tax evasion.

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 that it should be re-introduced, as it will help tax authorities plug revenue leakages.

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 Moneycontrol.

“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.

In January, the Council had already decided to re-introduce RCM, but only for dealers under composition scheme--a simpler scheme for small taxpayer, aimed at easing compliance burden.

Reverse charge is a mechanism where the recipient of the good or service will have to pay tax, which is otherwise paid by the supplier. 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.

Bringing taxpayers, especially composition dealers under RCM is a crucial measure against tax evasion as officials have found such dealers trying to escape paying taxes.

However, any changes on RCM may require amendment in the law, an official said, adding that it could happen in the Monsoon session of the Parliament.