RCM Availment

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This discussion explores the Goods and Services Tax (GST) implications for steel traders regarding freight charges. A steel trader highlights how manufacturers charge 18% GST on freight, pay 5% under Reverse Charge Mechanism (RCM) on freight to a GST-exempted GTA, and avail input tax credit (ITC), effectively saving 13% GST on freight. The trader questions this deviation and suggests paying inward freight and 5% GST under RCM to avoid GST loss. Another participant clarifies that the trader can avail the full 18% ITC, making the initial concern about loss unfounded, and paying 5% RCM would limit their ITC to 5%.

sankar ponnan

sankar ponnan (Querist)

08 April 2021 Sir / Mam-
I am a steel trader. Manufacturer charges the freight also in his invoice and collects gst @ 18% on freight. But, He pays the freight to GTA (GST Exempted) and he pays gst @ 5% under RCM on freight paid and availed that inputs also.

Here, He saves GST @ 13% on freight and @5 % on RCM credit and utilizes towards his sales.
So, He enjoys the entire GST @18 % on freight collected from me While I suffer the gst.

Why this deviation and why the act safe the manufacturer?

To avoid this GST loss, It is better that I pay inward freight and GST @ 5% on RCM then avail the credit.

Is it correct sir ?
Plz convey your opinion
thanks in adv

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

08 April 2021 Yes, to avoid this GST loss, It is better that you pay inward freight and GST @ 5% on RCM then avail the credit.

It's correct.

CMA Poornima Madhava

CMA Poornima Madhava (Expert)

09 April 2021 Am a bit confused here. Being a trader, will you not be able to avail entire GST @18% as ITC. How will this be a loss to you? Moreover, if you pay GST @5% on RCM, your ITC will also be limited to 5%. Am I missing anything here?

sankar ponnan

sankar ponnan (Querist)

09 April 2021 Yes .. Yes...U are right Mam. I missed that point -ITC. Sorry I placed this question with wrong concept. thanks for guidance plz.
But, I think , Paying 5% on fright under RCM is best in cost wise than paying 18%.

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