Jul 312017

Liability to pay GST on expense

As we all know that from 1st July 2017, GST is payable on sales made by trades, manufactures etc which hitherto paying taxes under existing laws. However, do we know that GST is also payable on expense incurred by the assessee. There we are discussing the related provisions in brief:

Section 9(4) of the act, as stated below, cast a liability on the purchaser of the goods and / or service to pay the GST:

(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient 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.

(Similar provisions are inserted in respective state GST laws, IGST and UTGST laws)

Thus, the liability to pay GST is twofold as explained below:

Direct liability Indirect liability
Simple to understand that in case any supplies are made the supplier is liable to pay GST and get it recovered from the purchaser. Here, an attempt is made to recover the taxes from the purchaser in case supplier is not liable to pay the GST as his turnover is below Rs 20 lacs.

Caution to business owners

From now onwards, before booking any expenditure in the profit and loss account, accountant must go through the list of expenses and find out:-

  1. Whether GST is liable to be paid on the expenses under GST law?
  2. If yes, whether GST is paid by the supplier of goods and / or services?
  3. If GST is not paid, find out the HSN code and rate of GST based on the classification criteria of the goods and / or services received and consumed by the receiver registered person?
  4. Raise invoice on himself of the taxable amount and tax value of the respective goods?
  5. Pay the tax liability on the above tax invoice?
  6. Find out whether GST is paid above is also available as input tax credit (ITC) or goods and / or services falls under section 17(5)?
  7. In case goods / services under question falls under section 17(5) input tax credit will not be available irrespective of the fact that GST is paid by supplier or receiver?

Expenses not liable to GST under reverse charge mechanism

Expenses on which GST is not payable:

  1. Salary to staff
  2. Wages to staff
  3. Salary, interest on loan, commission etc to partners of the firm
  4. Electricity expense
  5. Petrol
  6. HSD
  7. Any payment of statutory dues
  8. Expenses upto Rs 5000 per day in aggregate for supplies from all unregistered taxable person in a single day.

Sensys Technologies

  8 Responses to “Liability to pay GST on expense”

  1. This is a good article. However, you can visit http://www.udyogsoftware.com to take care of all your GST-related problems. Thank you.

  2. This is a wonderful read. However, you can visit encomply.com to take care of all your GST-related problems. Thank you.

  3. Kindly let me know if we have to mention Staff Salary and Wages in GSTR-3B returns. Kindly reply,

  4. Is reverse charge is applicable while imposing cheque dishonor charge and interest from our debtors.

  5. With ref. to above comment, Sl. No. 8 under, ” Expenses not liable to GST under reverse charge mechanism”, I wish to clarify / seek clarification as under:
    As per Notification 8/2017 -Central tax, the last para reads as – “Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, WHO IS OR are not registered, exceeds five thousand rupees in a day.”
    As the word “WHO IS” has been inserted, then it means that purchases from both registered and non registered dealer during the day amounting to less than Rs. 5000/-. where as you have mentioned that it is only from unregistered dealer.
    You may kindly arrange to relook into the notification and clarify the same.

    • Purchases upto Rs. 5,000 per day from unregistered suppliers will not attract GST. In other words, there is a reverse charge on buying from unregistered dealers if you are dealing with unregistered suppliers and making payments above Rs. 5,000.

  6. please explain reverse charge on expenses like bank charges etc.

  7. Dear Sir
    Your expert advice required.

    For transporters by road RCM payment of GST @5%, can we treat it cost to product OR we will get input credit . please specify section also

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