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Newly Introduced Reverse Charge Mechanism Liability and Input Tax Credit Statement in GST

The GST department through its updates section has announced the introduction of Reverse Charge Mechanism(RCM) Liability/Input Tax Credit(ITC) Statement from the tax period August 2024 onwards. This statement will enhance the accuracy for the RCM transactions by assessing the RCM liability.

The Goods and Services Tax (GST) Portal has introduced a new statement called the RCM Liability/ITC Statement to assist taxpayers in correctly reporting Reverse Charge Mechanism (RCM) transactions. This statement is designed to enhance accuracy and transparency in RCM reporting by capturing the RCM liability shown in Table 3.1(d) of GSTR-3B and its corresponding ITC claimed in Table 4A(2) and 4A(3) of GSTR-3B for a return period.

What is the Reverse Charge Mechanism (RCM)? The Reverse Charge Mechanism is a vital aspect of the GST system. Under normal circumstances, the supplier of goods or services is responsible for paying GST to the government. However, under RCM, this responsibility is shifted to the recipient of the goods or services. RCM is typically applicable in situations where the supplier is unregistered under GST, such as in the case of imports or certain specified goods and services.

Overview of the New RCM Liability & ITC Statement The RCM Liability & ITC Statement is a new feature on the GST Portal designed to assist taxpayers in accurately reporting their RCM transactions. This statement captures the RCM liabilities declared in Table 3.1(d) of GSTR-3B and the corresponding ITC claimed in Table 4A(2) and 4A(3) of GSTR-3B for a particular return period. By doing so, the statement helps ensure that the RCM liabilities and ITC claims are in sync, reducing the risk of discrepancies.

Applicability of the RCM Liability & ITC Statement The RCM Liability & ITC Statement is applicable to both monthly and quarterly GST filers. For monthly filers, the statement is applicable from the tax period August 2024 onwards, while for quarterly filers, it is applicable from the July-September 2024 period. This means that businesses need to start using the statement for all relevant transactions beginning from these periods.

How to navigate RCM Liability & ITC Statement Taxpayers can navigate to the statement on the GST Portal by following this path:  Services >> Ledger >> RCM Liability/ITC Statement. 

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Reporting the Opening Balance One of the critical features of the RCM Liability & ITC Statement is the ability to report the opening balance of RCM ITC. This is particularly important for taxpayers who may have discrepancies in their previous filings. The process of reporting the opening balance is designed to address cases where taxpayers may have paid excess RCM liabilities or claimed excess ITC in previous periods.

  • Positive Opening Balance: If a taxpayer has paid excess RCM liabilities as declared in Table 3.1(d) of GSTR-3B but has not claimed the corresponding ITC in Table 4A(2) or 4A(3), they need to report a positive value for the excess paid liability as the opening balance in the RCM statement.
  • Negative Opening Balance: Conversely, if a taxpayer has claimed excess ITC in Table 4A(2) or 4A(3) but has not paid the corresponding RCM liability in Table 3.1(d), they must report a negative value for the excess claimed ITC as the opening balance.
  • Reclaiming Reversed ITC: In cases where RCM ITC was reversed in previous tax periods through Table 4B(2) of GSTR-3B, eligible taxpayers can reclaim this ITC in Table 4A(5) of GSTR-3B. However, it’s important to note that such reclaimed ITC should not be reported as part of the opening balance.

Taxpayers must ensure that the opening balance is accurately reported by the applicable deadlines. For monthly filers, the opening balance should consider RCM ITC up to the July 2024 return period, while quarterly filers should report the balance considering RCM ITC up to the April-June 2024 return period. The deadline for declaring the opening balance is 31st October 2024, with maximum 3 amendments allowed until 30th November 2024.

Conclusion The introduction of the RCM Liability & ITC Statement represents a significant step forward in ensuring the accuracy of GST filings, particularly concerning RCM transactions. For businesses, this new feature offers several benefits, including enhanced accuracy, error prevention, streamlined reconciliation, and reduced risk of litigation. As the RCM Liability & ITC Statement becomes a standard feature on the GST Portal, it is essential for businesses to familiarize themselves with its functionalities and ensure that they are fully compliant.

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