Ministers’ group to finalise views on reverse charge mechanism, discount on digital payment on July 8

Shishir Sinha New Delhi | Updated on July 04, 2018 Published on July 04, 2018

Proposal to be presented before GST Council on July 21 for formal decision

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 told BusinessLine. 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.

Published on July 04, 2018
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