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GTA want to take ITC

07 November 2024

I am providing GTA service to private ltd company. under RCM in which recipient is liable to pay tax in 5%. but now I want to take ITC and opt to pay tax under FCM Can I get any benefit if I choose FCM as compare to RCM.?

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3 Replies

Rama chary Rachakonda (Master in Accounts & high court Advocate) (8437 Points)
Replied 08 November 2024

Yes, you can opt for Forward Charge Mechanism (FCM) and claim Input Tax Credit (ITC) as a GTA service provider.

Comparing FCM to Reverse Charge Mechanism (RCM): Benefits of FCM over RCM:

1. *ITC availability*: Under FCM, you can claim ITC on input services and inputs used for providing GTA services, which can reduce your tax liability. In RCM, the recipient is liable to pay tax, and you cannot claim ITC.

2. *Tax rate*: FCM allows you to charge tax at the prevailing rate (5% in your case). In RCM, the recipient pays tax at 5%, but you cannot claim ITC.

3. *Compliance*: FCM requires you to file regular returns and maintain records for ITC claims. RCM has fewer compliance requirements.

4. *Credit utilization*: With FCM, you can utilize ITC to pay tax on your output services. In RCM, the recipient cannot utilize ITC.

Please consult a tax professional or accountant to ensure a smooth transition from RCM to FCM and to explore further benefits.

Additionally, consider the following: -

Review your contractual agreements with the private limited company. -

Ensure you have the necessary registrations and documentation. -

Analyze the impact on your cash flow and pricing strategy.

By opting for FCM, you can potentially benefit from ITC claims and optimize your tax liability.

priyanshu shroti (45 Points)
Replied 09 November 2024

Sir Can I collect tax from the recipient and pay

Sahil Jaiswal (Article Assistant) (1372 Points)
Replied 12 November 2024

Hello,

When providing Goods Transport Agency (GTA) services, you can choose to pay GST either under Reverse Charge Mechanism (RCM) or Forward Charge Mechanism (FCM). Here’s a breakdown of the benefits and considerations for choosing FCM over RCM, especially regarding Input Tax Credit (ITC):

Key Differences Between RCM and FCM for GTA Services:

Liability to Pay Tax:
- RCM: Under the Reverse Charge Mechanism (RCM), the recipient (in this case, the private limited company) is responsible for paying the GST at a rate of 5%.
- FCM: If you opt for the Forward Charge Mechanism (FCM), you, as the GTA, will be liable to pay GST at either 5% (without ITC) or 12% (with ITC).
Input Tax Credit (ITC):
- Under RCM: Since the recipient is paying the tax, you (the supplier) cannot claim ITC.
- Under FCM: If you choose to pay GST at 12%, you can avail of ITC on your inputs, input services, and capital goods. This can be beneficial if you incur substantial expenses subject to GST (like vehicle maintenance, fuel, and other overheads).
GST Rates:
- 5% GST Rate (Under FCM): You would be able to charge the recipient 5% GST, but you won’t be able to claim ITC.
- 12% GST Rate (Under FCM): If you opt for the 12% rate, you can claim ITC, which is beneficial if your input costs are high and attract GST.

Potential Benefits of Choosing FCM:

Access to ITC: Under the FCM at the 12% rate, you can claim ITC, which may reduce your overall tax liability if your input costs are significant.
Enhanced Cash Flow: Taking ITC under FCM can reduce the effective cost of services you provide, as you can offset taxes paid on inputs and claim credits on eligible expenses.
Competitive Pricing: By claiming ITC on expenses, you may be able to reduce your overall costs, potentially allowing for more competitive pricing or better margins.
Compliance Flexibility: Some businesses prefer FCM because it centralizes tax payment and compliance responsibilities with the supplier rather than relying on the recipient.

When RCM Might Be Better:

Simple Compliance: RCM keeps compliance straightforward, as the recipient bears the tax liability.
Lower Tax Rate: The effective tax rate under RCM is 5%, which may be lower than FCM’s 12% with ITC. For businesses with minimal input costs, RCM might still be more advantageous.