Exemption on intrastate supplies up to Rs. 5,000/-per day to a registered person.
1. Taking into consideration the difficulties faced by registered persons for paying tax under reverse charge mechanism on routine expenses, the Central Government has granted an exemption of Rs. 5,000/- per day to every registered person on purchases made from unregistered persons. This means that tax under reverse charge is not required to be paid if the purchases from unregistered person during a day do not exceed Rs. 5,000/-. However, if said limit is crossed, then tax is required to be paid on full value.
Examples
1. Mr. P, a registered person under GST, buys goods from a person who is not registered under the Act for Rs. 4,100/-. In this case, he is not required to pay tax under reverse charge mechanism because purchases in a day have not exceeded Rs. 5,000/-.
2 Mr. Q, a registered person under GST, buys goods from a person who is not registered under the Act for Rs. 5,080/-. In this case, he is required to pay tax under reverse charge mechanism on Rs. 5,080 (not on Rs. 80/-, i.e., amount in excess of Rs. 5,000/-) because purchases in a day have exceeded Rs. 5,000/-.
3 Mr. R, a registered person under GST, buys goods from a person who is not registered under the Act for Rs. 5,080/- on September 01, 2017 and Rs. 4,100/- on September 02, 2017. In this case, he is required to pay tax under reverse charge mechanism on Rs. 5,080 (not on Rs. 80/-, i.e., amount in excess of Rs. 5,000/-) for purchases made on September 01, 2017 and he is not required to pay any tax under reverse charge for purchases made on September 02, 2017 because purchases on this day have not exceeded Rs. 5,000/-.
4 Limit of Rs. 5,000/- is GSTIN-wise, not person-wise. PQR Pvt. Ltd. is having its offices in nine (09) States and is, therefore, registered in nine (09) States. Now, limit of Rs. 5,000/- shall be applicable GSTIN-wise, meaning thereby that PQR Pvt Ltd can make purchases from unregistered person uptoRs. 5,000/- in a day from every GSTIN which in aggregate rose up to Rs. 45,000/- in a day. But the limit of Rs. 5,000/- remains unutilized to some extent for one GSTIN (i.e., PQR Pvt. Ltd.- Pune) cannot be utilized by another GSTIN (i.e., PQR Pvt. Ltd.- Mumbai) to complete the limit of Rs. 45,000/- per day of a person as a whole.
2. Inclusions in limit of Rs. 5,000/-
Purchase proceed of goods & services which are taxable but exempted from tax is also to be included in the limit of Rs. 5,000/-.
Exemption has been issued on supplies received in course of intrastate supplies. As per section 8 of Integrated goods and services tax, intrastate supply means supply of goods & services (unquote). It just refers to a supply, not excluding exempt supplies. Further, sub-section (4) of section 9 covers within its ambit taxable supplies. Therefore, only such exempt supplies would be included in Rs. 5,000/- which are taxable but have been wholly exempted by way of issuing notification under section 11 of the CGST Act or under section 6 of the IGST Act.
Therefore, if a registered person buys a professional book from unregistered person, which is wholly exempt from tax (HSN Code 4901), then amount paid to such person would be included in the limit of Rs. 5,000/-.
3. Exclusions from limit of Rs. 5,000/-
1 Petrol, diesel expenses are not to be included in the limit of Rs. 5,000/-.
Amount incurred towards petrol, diesel, etc., shall not be included in the limit of Rs. 5,000/- because levy of GST has been put on hold by the GST Council on these products. As per Explanation to article 246A of the Constitution, provisions of said article shall not be applicable on petroleum products till date to be recommended by the GST Council. Further, levy under sub-section (4) of section 9 is on 'taxable supplies'. Since levy of GST on petroleum products has been postponed to a future date by way of section 9(2) of the CGST Act, supply of said products becomes 'non-taxable supplies' and are, therefore, not covered under sub-section (4) of section 9.
2 Activities mentioned in Schedule III are not to be included in limit of Rs. 5,000/-.
Exemption of Rs. 5,000/- is being given on supply of goods or supply of services. Since the activities mentioned in Schedule III are neither considered as supplies of goods nor of services, transactions in said activities would not be considered for computing the limit of Rs. 5,000/-. For instance, salary paid to employees shall not be considered for computing limit of Rs. 5,000/- in a day.
3 Activities notified neither as 'supply of goods' nor as 'supply of services' are not to be included in the limit of Rs. 5,000/-.
As per NN 14/2017 CGST (Rate) dated 28th June, 2017 effective from 01st July, 2017, supplies made by the Central Government or the State Government or local authority in which they are engaged as a public authority shall neither be treated as supply of goods nor a supply of service, namely:-
"Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution"
Article 243G of the Constitution make reference to activities mentioned in eleventh schedule. Therefore, transaction in respect of such activities is neither a supply of goods nor a supply of service.
For instance, such schedule mentions 'Drinking water' as a function entrusted to a panchayat. Therefore, supply of drinking water by local authority who is not registered under the GST and payment of water bill by registered person shall not be considered while computing limit of Rs. 5,000/-.
4 Non-GST supplies shall not be included in limit of Rs. 5,000/- in a day.
Non-GST supplies are the supplies which are outside the ambit of GST and are, therefore, not covered leviable to tax under reverse charge mechanism under sub-section (4) of section 9 of the CGST Act, 2017.
4. Exemption not available in case of inter-State supplies
No exemption is on inter-State supplies from unregistered persons.
It is to be noted that exemption of Rs. 5,000/- in a day has been introduced only on intrastate supplies and not on interstate supplies. The reason is very clear. If a person makes interstate supply, he has to get compulsorily registered under section 24 of the CGST Act, 2017 irrespective of the turnover. So there would probably not be any case where reverse charge liability arises under section 9(4) of the CGST Act, 2017.
5. Exemption not available on supplies notified under section 9(3) of the CGST Act, 2017
There may be a case where a category of supply is taxable under reverse charge by way of notification. Since the person providing those supplies is not liable to pay, hence, has not taken registration. In this case, it needs to be determined whether it would fall under section 9(3) or 9(4) of CGST Act, 2017. If a supply is notified by the notification to be a supply, tax on which is payable under reverse charge, then irrespective of the fact that it is received from registered person or unregistered person it would fall under section 9(3) of the CGST Act, 2017. The exemption of Rs. 5,000/- is available in respect of supplies under section 9(4) of the CGST Act, 2017, hence, such supplies shall also not be included into the limit of Rs. 5,000/-. Therefore, if any registered person avails of legal services from an advocate located inside State, then such registered person is required to pay CGST & SGST under reverse charge mechanism irrespective of whether advocate bills his services for less than Rs. 5,000/- in a day.