RCM Under Real Estate Sector: The term RCM in GST is reverse charge mechanism which is a method of paying tax by the receiver instead of supplier. As per section 2(98) of CGST Act 2017, Reverse charge means the liability to pay the tax by the recipient/receiver of the supply of goods and services or both instead of the supplier.
Reverse Charge Mechanism is Applicable in Case of
1) Imports – where the tax need be paid under reverse charge mechanism to the government on the import in addition to the other import duties.
2) Where goods or service or both purchase from unregistered dealer – if unregistered person selling goods to registered person then the liability to pay the tax is shifts on the registered person if the such goods or service is taxable under GST.
There is no RCM in case of exempted supplies. The concept behind RCM is to prevent tax evasion as it is almost impossible to collect tax from the unregistered person all this provision is applicable to registered person.
3) Other supply of notified goods and services – i:e Goods Transport Agency, Advocate, Insurance Agent, Director of a company or body corporate etc.
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The Concept of RCM Under Real Estate is as follows
w.e.f 01/04/2019 the tax on supply of construction of residential apartments reduce from 8%/12% to 1%/5% with many conditions and some of conditions for availing rate of 1%/5% as per NN 11/2017 are
“Provided also that eighty percent of value of input and input services, [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], used in supplying the service shall be received from registered supplier only”
To calculate that 80% builder shall maintain project-wise accounts of inward supplies from registered and unregistered suppliers and calculate tax payment on the shortfall at the end of the financial year. The tax liability on the shortfall of inward supplies from unregistered persons to be added to output tax liability in the month of june following the end of the financial year. Which means builder submit the above details on gst portal by the end of the quarter (30th june) following the financial year through DRC-03.
Builders have to paid monthly payment of tax under RCM on the following procurement from an unregistered person
1) Cement procured from an unregistered person is taxable at 28%
2) capital goods (at applicable rates)
The calculation of shortfall of Inward supplies from registered person for the purpose of RCM are as follows
(1) Let suppose if the total purchase of builder is Rs.100 in which
30 Is Purchased from registered
25 Is purchased from unregistered
12 Cement Purchased from registered
08 Cement Purchased from unregistered
23 TDR/FSI long-term lease of land (Exempt)
02 Electricity, HSD, Motor spirit, Natural Gas (Non-GST)
Step 1)
First of all according to the law these 23 TDR/FSI long term lease of land (Exempt) and 02 Electricity, HSD, Motor spirit, Natural Gas (Non-GST) need not to be calculated for the pupose of RCM. So now the total purchase of project is Rs.75 for the purpose of RCM Calculation.
Step 2)
08 cement purchased from unregistered is payable at the same month of procurement. 08 cement purchased from unregistered also became registered once the tax (RCM) is paid on the same.
Step 3)
12 cement & 30 is already Purchased from a registered person. So out of Rs.75 Rs.50 is registered and 25 is unregistered Purchase. But the 80% of 75 is 60 so there is a shortfall of 10 only. Therefore the RCM is payable on 10 only @18% at the end of FY.
1) Service like GTA etc (on which RCM is applicable) procure from unregistered person and Paid RCM on the same will be counted as registered purchase.
2) Expenses Like salary etc are not be consider for the purpose of calculating of the project cost.
3) Exempted item procuring for the project is also treated as an unregistered purchase and builder has to pay 18% gst on the same (If it is exceeding 20% of total procurement).
4) DRC -03 is to be filed before 30th June of the following FY.
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(2) Let’s suppose if the total purchase of builder is Rs.100 in which
30 Is Purchased from registered
05 Is purchased from unregistered
30 Cement Purchased from registered
10 Cement Purchased from unregistered
23 TDR/FSI long-term lease of land (Exempt)
02 Electricity, HSD, Motor spirit, Natural Gas (Non-GST)
Step 1)
Again as per the first condition according to the law these 23 TDR/FSI long term lease of land (Exempt) and 02 Electricity, HSD, Motor spirit, Natural Gas (Non-GST) need not to be calculated for the pupose of RCM. So now the total purchase of project is Rs.75 for the purpose of RCM Calculation.
Step 2)
10 cement purchased from unregistered is payable at the same month of procurement. 10 cement purchased from unregistered also became registered once the tax (RCM) is paid on the same.
Step 3)
30 cement & 30 is already Purchased from a registered person. So out of Rs.75 Rs.70 is registered and 05 is an unregistered Purchase and the 80% of 75 is 60 so there is no any shortfall and No RCM will be payable.
Note: the same condition is applicable to REP (Real Estate Projects) And RREP (Residential real estate projects)
(3) Let’s suppose if the total purchase of builder is Rs.100 in which
33 Is Purchased from registered
02 Is purchased from unregistered
30 Cement Purchased from registered
10 Cement Purchased from unregistered
23 TDR/FSI long term lease of land (Exempt)
02 Electricity, HSD, Motor spirit, Natural Gas (Non GST)
Step 1)
Same as first & second condition according to the law these 23 TDR/FSI long term lease of land (Exempt) and 02 Electricity, HSD, Motor spirit, Natural Gas (Non GST) need not to be calculated for the purpose of RCM. So now the total purchase of the project is Rs.75 for the purpose of RCM Calculation.
Step 2)
10 cement purchased from unregistered is payable at the same month of procurement. 10 cement purchased from unregistered also became registered once the tax (RCM) is paid on the same.
Step 3)
30 cement & 33 is already Purchased from a registered person. So out of Rs.75 Rs.73 is registered and 02 is an unregistered Purchase and the 80% of 75 is 60 so there is no shortfall and No RCM will be payable here also.
Note: In the above second and third condition there is no need to furnish or file any form i: e DRC-03 etc because there is not any shortfall.