GST Impact: MSMEs learn to deal with reverse charge mechanism the hard way

The new indirect tax regime is having the effect akin to setting a cat among pigeons for thousands of micro and small businesses across the country. This is largely on account of a provision to collect and pay tax on behalf of unregistered vendors and suppliers under the reverse charge mechanism (RCM). A concept borrowed from service tax, RCM is now applicable also to supply of goods. However, higher compliance costs, including larger working capital requirement, is causing a shakeout in the procurement chain of businesses, with smaller businesses, operating largely in the unorganised sector.

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