Applicability of Section 16(4) for availing ITC in case of RCM

Most of the Taxpayers feel that ITC of GST liability paid under RCM can be taken anytime irrespective of the limitations provided in Section 16(4). Section 16(4) provides that one can avail ITC pertaining to a Financial Year up to 30 November of next Financial Year.

Now Question arise whether it will also be applicable to the availment of ITC of RCM paid. In this article, we will discuss the issue comprehensively.

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Legal Provisions regarding Payment of RCM

Section 9(3) of the CGST Act, 2017 provides that for the specified Goods and Services, the tax shall be paid on reverse charge basis by the recipient of such goods or services or both 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.

For complete & updated list of services which attracts RCM along with amendment history, please read at : Complete List of RCM

Similarly Section 9(4) specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, 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 such supply of goods or services or both.

Accordingly, RCM needs to be paid by the Recipient in terms of aforesaid sections. Similarly, parallel provisions have been provided in Section 5(3) & 5(4) of the IGST Act, 2017.

Further, in terms of Section 49(4) read with Section 2(82), RCM liability needs to be discharged in Cash only. (ITC can not be used).

Legal Provisions regarding Availment of ITC of RCM Paid

Now question comes, whether there is any specific provisions which provides for availment of ITC of the GST paid as RCM. The answer is yes as Definition of Input Tax as per Section 2(62) includes:

"input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes-

....

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

Further for availing Credit of Input Tax, Section 16(2)(a) prescribes that:

he is in possession of a tax invoice or debit note issued by a supplier registered under

this Act, or such other tax paying documents as may be prescribed

Further as per Section-31 read with Rule-46 in case Supplier is a Registered Person even though its Supply is under RCM, Supplier needs to issue Tax Invoice though on Invoice he will write that Tax is payable under RCM.

In case, Supplier is an un-registered person, Recipient needs to issue Self-Invoice in terms of Section 31(3)(f).

Applicability of Section 16(4) to ITC pertaining to ITC

Section 16(4):

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the thirtieth day of November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.....

Since in case of RCM also, ITC needs to be availed with the help of Invoice (whether it is being issued by Supplier or by him self i.e. Self-invoice), it appears that time-limit provided in Section 16(4) will be applicable.

Accordingly, for the Taxpayers like he paid RCM liability pertaining to FY 2022-23 in March-2024. In that case, he is not eligible for ITC against this RCM payment as he could avail ITC pertaining to 2022-23 only up to 30 November 2023.

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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational & academic purpose for students. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.