RCM Time of Supply Rule Changes Effective from 1st November 2024

The CBIC has made significant changes to the Reverse Charge Mechanism (RCM) rules under the Goods and Services Tax (GST) in India, effective from November 1, 2024. These RCM Time of Supply Rule changes impact how businesses account for RCM transactions and claim input tax credit (ITC). These updates aim to ensure stricter compliance and streamline the taxation process under RCM, especially concerning self-invoicing practices.

Key Changes in Time of Supply Rules

A) Self-Invoicing Requirement:

Under the revised framework, self-invoicing for transactions under RCM must be completed within the prescribed timelines. This requirement aligns with the CGST Rules, ensuring that businesses account for their liabilities promptly. If there is a delay in issuing self-invoices, it could result in penalties and the potential denial of Input Tax Credit (ITC). Timely compliance is crucial to avoid these consequences.

In simple words, registered businesses must now issue self-invoices to claim ITC for RCM transactions to reflect the taxable supplies received under RCM.

B) Time of Supply:

The time of supply for RCM transactions will be determined based on three factors:

The date of payment for the supplies
The date of issuance of the invoice by the supplier (if applicable)
The date of receipt of the supplies

Important Note: As per Notification No. 20/2024, taxpayers are permitted to generate self-invoices for past periods under RCM, if not already issued, by November 30, 2024. This relaxation applies to earlier transactions where invoices were not generated within the stipulated timelines, offering an opportunity to regularize compliance for such cases.

Official Rule Amendments

The new rules are encapsulated under the Central Goods and Services Tax (Tenth Amendment) Rules, 2024, with specific references to:

Rule 47A: The CBIC introduced Rule 47A via GST Notification No. 20/2024, effective November 1, 2024. It requires businesses under RCM to issue tax invoices within 30 days of receiving goods or services from unregistered suppliers. This ensures timely compliance and reduces invoicing delays. Non-compliance may lead to penalties.
Section 12(3) and Section 13(3) of the CGST Act: These sections govern the time of supply under RCM for goods and services, respectively. They have been updated to specify that the time of supply will now be determined by the earliest of:
a. The date of payment recorded in the supplier’s books,
b. The date of payment as reflected in the recipient’s bank statement, or
c. 60 days from the invoice date (for registered suppliers).

Also Read: New RCM Liability & ITC Statement: What Businesses Need to Know

Implications for Businesses

Enhanced Compliance Requirements: Businesses procuring goods or services from unregistered suppliers are now obligated to raise self-invoices by the due dates stipulated under Rule 47A. This measure ensures accurate tax reporting and adherence to compliance protocols.
ITC Eligibility and Penalties: Non-compliance with the updated rules can lead to loss of ITC eligibility for the respective period, in addition to financial penalties. Businesses must adapt their systems to meet these requirements efficiently.
Impact on Operational Processes: With the changes, businesses must reassess their procurement and accounting workflows to accommodate the new RCM rules. Investing in automated solutions could help simplify compliance.

Preparing for the Transition

To address the implications of these changes, companies should:

Train their teams on the updated self-invoicing and RCM processes.
Invest in technology to automate GST compliance and avoid manual errors.
Monitor vendor interactions, especially when dealing with unregistered suppliers.

Conclusion

The revised RCM time of supply rule changes reflect CBIC’s commitment to improving tax discipline and ensuring seamless ITC utilization. Businesses must adapt swiftly to these updates to avoid penalties and maintain compliance.

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