no payment of GST under RCM- Purchased through Credit cards, Goods and Services Tax - GST

[Naresh G]

Dear All,

A software company has to purchase some software licenses from outside India. What it does is, it is telling their employees to purchase these software licenses through their credit cards and the amount incurred by their employees is being reimbursed to them on time to time basis. In this case, whether GST under RCM to be paid by the company as the software is being utilized by the company.

If the bill is on the name of the company then I think, GST under RCM is applicable. But bill is on the name of the employee but the company is utilizing it, then GST Applicable?

Posts / Replies

[KASTURI SETHI]

This practice is wrong.

It is OIDAR service. The company, 'actually' is real recipient of service and not the individual. The purchase expenses are virtually borne by the Co. RCM is applicable and GST is to be paid by the company.

Also read the C.B.E. & C. Flyer No. 43, dated 1-1-2018 word for word to arrive at correct decision in this context.

 

[GUNASEKARAN K]

GST is levied at 18 percent on sale of digital services in India.

As the digital economy proliferates, the taxation of services provided through the internet has caught the attention of regulators. These internet-based services are officially known as Online Information Database Access and Retrieval (OIDAR). They refer to the category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services.

In India, OIDAR services were first brought under the ambit of indirect taxation in 2001, under the service tax regime. In 2016, with the evolution of the digital space, the scope of these services was also broadened.

In 2017, with the introduction of the unified Goods and Services Tax (GST) regime, OIDAR services are charged under GST.

The GST applicability on OIDAR services depends on the location of the recipient of the service. Under Section 13 of the IGST Act 2017, where the location of the supplier or location of the recipient is outside India – the place of supply of OIDAR services shall be the location of the recipient of services.

Thus, under this Section, any recipient of OIDAR services is deemed to be in the taxable territory – if any two of the following non-contradictory conditions are satisfied:

1. Location of address presented by the recipient through internet is in taxable territory.
2. Credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory.
3. Billing address of the recipient of services is in the taxable territory.
4. Internet protocol address of the device used by the recipient of services is in the taxable territory.
5. Bank of the recipient of services in which the account used for payment is maintained is in the taxable territory.
6. Country code of the subscriber identity module card used by the recipient of services is of taxable territory.
7. Location of the fixed land line through which the service is received by the recipient is in the taxable territory.

The taxability of OIDAR services is dependent on the location of the recipient and GST liability is determined accordingly:

• If both the supplier, as well as the recipient, are in India, then GST will be applicable and will be charged on the basis of forward charges.
• If the supplier is outside the taxable territory, and the recipient located in India is registered under GST, then GST will be applicable. Furthermore, payment of goods and service tax will be on reverse charge
• If the recipient is residing in India, but is not registered under GST, and the supplier is outside the boundaries of India, then GST will be applicable, and payment for goods and service tax will be on forward charge basis. When an unregistered, non-taxable person in India imports the OIDAR services, the supplier located outside India will make the payment for such tax on forward charge
• If both the suppliers, as well as recipients, are not located in India, then no GST will be applicable.
• If the supplier is residing in India, but the recipient is located outside the taxable territory in India, no GST will be applicable to the export service.

[Padmanathan Kollengode]

How will you account this software purchase?

Does this transaction form part of the employement contract?

[Naresh G]

Good Morning sir,

The company is booking the expenditure in their books as "software licenses purchased outside India" but the payments are made in INR, which is to their employees as reimbursement.

The employees of the company are purchasing the software in USD through their credit cards.

But the software is being used by the company for their furtherance of business. How to levy the RCM in this case?

[GUNASEKARAN K]

I agree the view of Sri.Kasturi Sethiji,

As per your reply S.No.4 - GST Payable under RCM

1. Purchase of Software License directly or indirectly to use by company for furtherance of business is liable to GST under RCM.

2. Accounting as "software licenses purchased outside India" is also falling under definition of "Import of Service" which attract GST under RCM.

3. Subject to payment by Employees through credit card and reimbursement - Need to analyse under Income Tax Rules as well.

[Alkesh Jani]

Dear Experts,

As the license of software are purchased by the employee, can it be termed as inter-state supply and employee is liable for registration?

Thanks

[GUNASEKARAN K]

No, The employee not liable to register under GST.

A person making inter state supply is liable to register under GST

GST is consumption based Taxation. The Company is the original recipient of Software usage and termed as OIDAR service which liable to pay GST under RCM.

[KASTURI SETHI]

Sh.Gunasekaran K Ji,

I agree with you but such practice has to be changed. Why 'shield' is required ? Why the co. should not come direct in the picture as recipient ?

[GUNASEKARAN K]

Sh.Kasturi Sethi ji,

The fact behind the transaction should be explained by the person who raised the query.

My view is it is not right manner to make payment through employees credit card for a business expenditure.

[KASTURI SETHI]

Sh. Gunasekaran K Ji,

I agree with you. You are absolutely .right.

[Shilpi Jain]

In this case, if its not an OIDAR service, but a mere purchase of software license, can a view be taken that the employee is not using the software for his business and thereby not liable to register?

Also in that case can we say it is supplied by employee to company? or maybe just a reimbursement of expense?

The moment the money is paid by employee to the supplier, employee is only the recipient.

Not very easy to deduce, but for sure to have a conservative and dispute free view, in case company eligible for credit can consider paying GST and taking ITC.

[vijay kumar]

The fact that company is booking the expexpense as "software licenses purchased outside India" makes it clear that they are the recipients of service. Even if booked under some other head also, the nature of transaction would remain the same. Purchase through employees is a modus operandi to avoid GST payment and will be treated as camouflage. Payment in INR to employees will not alter the RCM liability on the company since Nofn.10/2017-IGST does not specify payment in FC.. Further, it is not OIDAR service, doesn't fit in there . .. Will attract tax, interest and penal provisions

[Ganeshan Kalyani]

As stated by experts the cost pertains to company. So, the company should have done the purchases/import on its name. Putting the employee in between the transaction create controversy. These transaction will be taken up by the GST Audit department. Just putting a person in between the actual buyer and supplier will not take away the actual buyer from the transaction.