RCM On Purchases From Unregistered Dealers In GST (Ultimate Guide)
Under the GST laws, the RCM or Reverse Charge Mechanism applies to purchases made from unregistered dealers (dealers who have not obtained GST registration).
According to Section 9(4) of the CGST Act, if you purchase goods or services from an unregistered dealer (URD), then you are liable to pay GST on a reverse charge basis (only for certain goods/services and registered persons).
As per GST law, if the registered person purchases a supply above 5,000 per day from an unregistered dealer, then only he has to comply with the provisions.
This in-depth article will guide you through all the details about RCM on purchases from unregistered dealers in GST.
Now let’s jump into the article.
What is RCM in GST with example?
RCM or Reverse Charge Mechanism means the receiver of the goods or services is responsible for paying and depositing the GST with the government rather than the supplier.
However, under the normal mechanism, the receiver of goods or services pays the GST to the supplier of those goods or services, who then deposits the GST with the government.
Reverse Charge is applicable in the following two situations:
- As per section 9(4), when the registered person purchases goods or services from an unregistered person.
- According to section 9(3), the government notified the supply of specific goods or services
Reverse Charge under Section 9(4) – Supply from Unregistered to Registered Person
Let us consider you (as a registered person) hiring a Taxi.
Here, the reverse charge is not applicable.
Rohit (an unregistered person) provides consulting services to Raja (who is a registered person under the GST) for Rs. 10,000.
In this case, the Reverse Charge would be applicable as the value is Rs. 10,000 which is more than Rs. 5,000 in a day.
Reverse Charge under Section 9(3) – Goods & Services notified by Govt for levy of Reverse Charge Mechanism
Goods and services on which GST is levied under the Reverse Charge Mechanism are below
Reverse Charge on Goods under Section 9(3)
|SL. No.||Description of Supply of Goods||Supplier of Goods||Recipient of Supply|
|1||Cashew nuts, not shelled or peeled||Agriculturist||Any registered person|
|2||Bidi wrapper leaves (tendu)||Agriculturist||Any registered person|
|3||Tobacco Leaves||Agriculturist||Any registered person|
|4||Silk Yarn||Any person who manufactures silk yarn from raw silkworm cocoons for the supply of silk yarn||Any registered person|
|5||Supply of Lottery||State Govt., Union Territory or Local Authority||Lottery Distributor or Selling Agent|
Reverse Charge on Services under Section 9(3)
|S. No.||Description of Supply of Services||Supplier of Service||Recipient of Supply|
|1||GTA service for goods by Road||Goods Transport Agency (GTA) who has not paid central tax at the rate of 6%||Following persons, if they pay or is liable to pay freight:1. Factory [as per Factories Act]2. Society [as per the Societies Registration Act or under any other law for the time being in force]3. Co-operative society4. Any person registered under GST5. A body corporate (Companies)6. Partnership firm & AOP7. A casual taxable person located in the taxable territory.|
|2||Legal services||Individual advocates, including a senior advocate and a Firm of advocates||Any business entity|
|3||Any Service||An arbitral tribunal||Any business entity|
|4||Sponsorship Service||Any Person||Anybody corporate or partnership Firm|
|5||Any service other than1. Renting of immovable property2. India Post’s Service by way of speed post, parcel post, life insurance, and agency services3. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an Airport4. Transport of Goods or passengers.||By Central Government, State Government, Union territory or Local Authority||To Any business entity|
|5A||Renting of Immovable Property by||Central Government, State Government, Union territory or local authority||To a person registered under the GST Act|
|6||Any Service by Director||A director of a company or a body corporate||To The company or a body corporate|
|7||Any Service by Insurance Agent||An insurance agent||Any person carrying on insurance business|
|8||Any Service by Recovery Agent||A recovery agent||A banking company or a financial institution or a non-banking financial company|
|9||Service of an Author, Music Composer, Photographer, Artist or the Like||Author or music composer, photographer, artist, or the like||Publisher, music company, producer, or the like|
|10||Any Service||By the members of Overseeing Committee||To Reserve Bank of India (RBI)|
|11||Service provided by Individual Direct Selling Agents (DSA)||By Individual Direct Selling Agent (DSA)||To A banking company or a non-banking financial company|
|12 [IGST]||Any Service||By Person located in a non-taxable territory||To A person located in the taxable territory Except Online recipient who are non taxable|
|13 [IGST]||Service of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.||By A person located in Non-taxable territory||To An Importer|
How do you record purchases from an unregistered dealer in GST?
You need to do the following, to record purchases from an unregistered dealer:
- Enable tax liability on reverse charge
- Update party ledgers
- Configure purchase ledger
Enable tax liability on reverse charge
In the Company GST Details, enable tax liability on reverse charge (Purchase from unregistered dealer) to Yes to calculate liability and input tax credit on purchases made from unregistered dealers
It will activate the calculation of the reverse charge for the applicable period.
Update party ledgers
- Navigate to Tally Gateway → Accounts Info. → Ledgers → Alter → select the ledger.
- Under Set/alter GST details? — Yes.
- In the GST Details, choose Registration Type – Unregistered.
- Now save it.
Configure purchase ledgers
1. Visit Gateway of Tally → Accounts Info. → Ledgers → Alter → select the purchase ledger.
2. Under GST applicability
- Is GST Applicable? — Applicable.
- Set/alter GST details? — Yes.
3. GST Details.
- Press F12: Configure and set Enable reverse charge calculation to Yes.
- Taxability – Taxable.
- Is reverse charge applicable? — Yes.
- Enter the GST rates.
4. Now, save the purchase ledger.
Record Inward Supply
Record inward supplies from intrastate unregistered dealers
When you purchase the products from an unregistered dealer, create a new bill reference and then make a payment. If an advance payment is made, it can be adjusted against the purchase invoice.
To record a purchase entry
1. Navigate to Gateway of Tally → Accounting Vouchers → F9: Purchase.
2. Enter the details.
Link the bill reference of the payment voucher (selecting A GST Ref in the Bill-wise Details screen) to the purchase invoice, if you have made an advance payment.
3. Click A: Tax Analysis > F1: Detailed to view the detailed Tax Analysis report
4. Press escape (Esc) to go back.
5. Enter Ctrl+A to save.
Recording an advance payment to an unregistered dealer
You can record an advance payment voucher when you give a cash payment in advance to an unregistered dealer for products that will be delivered at a later time.
1. Go to Gateway of Tally → Accounting Vouchers → F5: Payment.
2. Click V: Reverse Charge Adv. to mark the voucher for advance payment. The values are captured in the GSTR-2 report.
3. In Account, select the bank from which the payment will be made.
4. Select the party ledger predefined as an unregistered dealer, and enter the details in the Advance Payment Details screen.
The tax type appears as an integrated tax or central tax and state tax, depending on the state selected for the party ledger.
5. To save the Advance Payment Details, Press Ctrl+A.
6. Select the type of reference as Advance and enter the reference details in the Bill-wise Details screen.
7. Enter the details in the Bank Allocations screen.
8. Press Enter to save
What does unregister dealer mean?
An unregistered dealer is any person who is not registered under the GST Act or any other law.
Persons who are not liable for registration.
(a) any person engaged in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;
(b) an agriculturalist in the way of supplying food through land cultivation.
Can we purchase from an unregistered dealer?
Yes, you can purchase from an unregistered dealer.
“According to Section 9(4) of the CGST Act, if a registered person buys goods or services from an unregistered dealer (URD), the registered taxpayer is required to pay GST on a reverse charge basis (only for specific goods or services and registered persons).”
Is an unregistered dealer liable for GST payment?
No, an unregistered dealer is not liable for GST payment. As per Section 9(4) of the CGST Act, if you purchase goods or services from an unregistered dealer, then you, as a registered taxpayer, will have to pay GST on a reverse charge basis.
How do I create a waybill for an unregistered dealer?
To generate an E-Way bill for an unregistered dealer, follow the easy steps below:
- Go to E way bill portal and tap the login with your valid username and password.
- Next, hover over the Registration tab and select E-way Bill for Citizens option.
- Now click on Generate New EWB option and provide the details such as your phone number, email, Address details, and PAN details.
- Verify the OTP you received on your registered mobile number.
- Next, mention the mandatory consignment and vehicle details and click on “Submit.”
Is an e-invoice required for unregistered dealers?
Yes, an e-invoice is required for unregistered dealers as a Reverse Charge Mechanism (RCM).
FAQs: RCM on purchases from unregistered dealers in GST
1. What will be the implications in case of receipt of a supply from an unregistered person?
Under the reverse charge mechanism, the registered person who receives goods or services from an unregistered person is liable to pay tax.
2. Can you invoice without being registered?
Yes, you can invoice without being registered under GST (unless registration is mandatory).
This article about RCM on purchases from unregistered dealers in the context of GST will help you understand RCM on purchases. To know more about such topics, visit our website, InstaFiling. Feel free to reach out to our team to resolve your queries.
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