Taxation - GST Ch 03: Charge Composition - Test 3: answer key

Question 1 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Vikramaditya Tech Labs Pvt. Ltd., registered in Maharashtra, manufactures industrial automation equipment. During September 2026, it makes payments to two directors and obtains premises from one of them. Ms. Devika Rao, an independent director who has no employer-employee relationship with the company, attends board and committee meetings and receives professional remuneration of ₹3,60,000 for the quarter ended 30 September 2026. She raises her fee invoice on 30 September. Mr. Raghav Mehta is a whole-time executive director appointed under an employment contract. For September, he receives salary of ₹1,50,000, which is classified as salary in the company's books and subjected to TDS under section 192 of the Income-tax Act. Apart from salary, he receives a performance-linked director's commission of ₹1,80,000 for additional board responsibilities. This amount is separately recorded and subjected to TDS under section 194J. The company receives his commission invoice on 5 September, records the payable on 24 September and makes bank payment on 26 September. Raghav also owns a commercial office building in his personal capacity. He leases a portion of it to Vikramaditya for ₹1,20,000 per month during August and September 2026. He holds a separate GST registration for his property-leasing activity and issues tax invoices charging applicable GST. The lease is unrelated to his role as director. The company has no other remuneration arrangements with these individuals. All transactions are intra-State and the applicable GST rate on taxable director and property-renting services is assumed to be 18%. The finance department proposes to treat every payment to a director as an RCM transaction, including salary and property rent. The tax head must distinguish employment-related payments, remuneration for services in the capacity of director and services provided independently in a personal capacity.

Ms. Devika Rao receives ₹3,60,000 as remuneration for board and committee services. She is an independent director and is not an employee of Vikramaditya Tech Labs Pvt. Ltd. Determine the person liable to pay GST and calculate the combined CGST and SGST liability under the applicable reverse charge entry, assuming an 18% rate.

1. Devika pays ₹64,800 under forward charge as an individual service provider.
2. The company pays ₹32,400 under RCM as the CGST component only.
3. The company pays ₹64,800 under RCM, comprising ₹32,400 each as CGST and SGST. (correct answer)
4. No GST applies because director remuneration is invariably treated as salary.

Answer: C — The company pays ₹64,800 under RCM, comprising ₹32,400 each as CGST and SGST.

Explanation. An independent director is not an employee, and remuneration for services supplied as a director falls outside Schedule III. Under Sl. No. 6 of Notification No. 13/2017, the company pays tax under RCM. Total GST = ₹3,60,000 × 18% = ₹64,800. CGST = ₹3,60,000 × 9% = ₹32,400; SGST = ₹32,400. The independent director is not liable to discharge this tax under forward charge.

Where it goes wrong. Treating remuneration of every director as salary without first examining whether an employer-employee relationship exists.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 6; Circular No. 140/10/2020-GST dated 10.06.2020

Question 2 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Mr. Raghav Mehta receives monthly salary of ₹1,50,000 under his employment contract as whole-time director. The amount is classified as salary in the company's accounts and subjected to TDS under section 192 of the Income-tax Act. The company argues that the special RCM entry for directors overrides the employer-employee exclusion. Which treatment is correct for this salary payment?

1. The company pays ₹13,500 under RCM because Raghav is a director.
2. Raghav pays ₹27,000 under forward charge as salary consideration.
3. The company pays ₹27,000 under RCM because TDS is deducted from remuneration.
4. No GST is payable because the salary represents services in the course of employment. (correct answer)

Answer: D — No GST is payable because the salary represents services in the course of employment.

Explanation. Services provided by an employee to the employer in the course of employment are neither supply of goods nor supply of services under Schedule III. Raghav's salary of ₹1,50,000 is classified as salary and subjected to TDS under section 192. Therefore, taxable value = ₹0 and GST = ₹0 × 18% = nil. The director RCM entry does not override the employer-employee exclusion for genuine salary payments.

Where it goes wrong. Applying the director RCM entry to salary payments without checking Schedule III and the nature of the employment relationship.

Authority. Schedule III, paragraph 1 of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 6; Circular No. 140/10/2020-GST dated 10.06.2020

Question 3 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Apart from salary, Raghav receives a separate commission of ₹1,80,000 for additional responsibilities discharged in his capacity as a director. It is classified separately in the accounts and subjected to TDS under section 194J. Calculate the additional GST payable by Vikramaditya Tech Labs Pvt. Ltd. under RCM, assuming an 18% rate on this remuneration.

1. The company pays ₹32,400, comprising CGST ₹16,200 and SGST ₹16,200. (correct answer)
2. The company pays ₹16,200 as CGST alone under reverse charge.
3. Raghav pays ₹32,400 under forward charge on the commission.
4. No GST applies because all remuneration paid to an employee director is excluded.

Answer: A — The company pays ₹32,400, comprising CGST ₹16,200 and SGST ₹16,200.

Explanation. The separate commission is not salary in the course of employment. It is non-salary remuneration for services in the capacity of director, and hence attracts RCM. CGST = ₹1,80,000 × 9% = ₹16,200. SGST = ₹1,80,000 × 9% = ₹16,200. Total RCM = ₹16,200 + ₹16,200 = ₹32,400. The salary exclusion does not extend to a separately classified director's commission subject to section 194J.

Where it goes wrong. Extending the salary exclusion to separately paid director remuneration merely because the recipient also holds an employment position.

Authority. Section 9(3) of the CGST Act, 2017; Schedule III, paragraph 1 of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 6; Circular No. 140/10/2020-GST dated 10.06.2020

Question 4 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Raghav leases his commercial office building to Vikramaditya Tech Labs Pvt. Ltd. for ₹1,20,000 per month. The property is owned by him personally and the lease is unrelated to his directorial duties. He is separately registered under GST and issues tax invoices charging applicable GST. Determine the RCM treatment of the August and September rentals, considering both the director-services entry and the entry dealing with renting of immovable property by an unregistered supplier.

1. The company pays ₹43,200 under RCM because Raghav is its director.
2. Raghav pays ₹43,200 under forward charge; the company has no RCM liability. (correct answer)
3. The company pays ₹21,600 under RCM because only one month is taxable.
4. The company pays ₹43,200 under RCM because commercial rent is always covered.

Answer: B — Raghav pays ₹43,200 under forward charge; the company has no RCM liability.

Explanation. The lease is supplied in Raghav's personal capacity, not as a director. Circular No. 201/13/2023 clarifies that such personal-capacity services are not covered by director RCM. Further, Sl. No. 5AB applies to an unregistered supplier, whereas Raghav is registered. Two months' rent = ₹1,20,000 × 2 = ₹2,40,000. Forward-charge GST = ₹2,40,000 × 18% = ₹43,200, payable by Raghav.

Where it goes wrong. Treating all transactions involving a director as director services, while overlooking the personal capacity and separate registered supplier conditions.

Authority. Section 9(1) and section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. Nos. 6 and 5AB; Circular No. 201/13/2023-GST dated 01.08.2023

Question 5 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Nandini Insurance Ltd., a registered insurance company operating in Delhi, and Vikramaditya Finance Ltd., a registered NBFC, have engaged different agencies during August and September 2026. Nandini appoints Ms. Anuradha Sen, an individual licensed insurance agent under section 42 of the Insurance Act, 1938, to solicit policies and procure renewals. She earns commission of ₹6,00,000 for services completed on 31 August and submits her commission statement on 5 September. The company records the liability on 15 September and transfers the amount through its bank on 18 September. Vikramaditya Finance Ltd. engages Reclaim Associates, a sole-proprietorship recovery agency, to recover overdue loan instalments from defaulting borrowers. The agency completes services valued at ₹4,00,000 on 8 September 2026 and issues its invoice on 10 September. The NBFC records the payment liability on 30 October and its bank account is debited on 1 November. DebtHelp Pvt. Ltd., a separate recovery agency incorporated as a company, provides recovery services worth ₹3,50,000 to Rajdhani Bank Ltd., a registered banking company, during September 2026. The bank is the recipient under the recovery agreement. The same Reclaim Associates also undertakes recovery of overdue trade receivables for Aryan Steels Ltd., a manufacturing company, for consideration of ₹2,50,000. All the recovery agencies are engaged in genuine recovery activities and raise separate invoices for each assignment. All recipients and suppliers are located in the taxable territory, and all transactions are intra-State. Assume an 18% GST rate on the taxable services. No recipient has opted for composition levy. The accounts teams must distinguish insurance business from other business recipients, identify the notified category of recovery-service recipients, and determine time of supply for the NBFC transaction.

Ms. Anuradha Sen is a licensed individual insurance agent who solicits policies and procures renewals for Nandini Insurance Ltd. She earns commission of ₹6,00,000 during August 2026. Determine the person liable to pay GST and the total amount payable under RCM at 18%, considering that the recipient carries on insurance business.

1. Anuradha pays ₹1,08,000 under forward charge as the commission recipient.
2. Nandini pays ₹1,08,000 under RCM, comprising CGST ₹54,000 and SGST ₹54,000. (correct answer)
3. Nandini pays ₹54,000 as CGST alone because the agent is an individual.
4. No GST applies because insurance commissions are exempt supplies.

Answer: B — Nandini pays ₹1,08,000 under RCM, comprising CGST ₹54,000 and SGST ₹54,000.

Explanation. Sl. No. 7 of Notification No. 13/2017 covers services by an insurance agent to a person carrying on insurance business. Nandini is the insurer and is liable under RCM. Total GST = ₹6,00,000 × 18% = ₹1,08,000. CGST = ₹6,00,000 × 9% = ₹54,000. SGST = ₹54,000. The agent's individual status does not transfer the statutory liability to her.

Where it goes wrong. Assuming that commission services supplied by an individual must invariably attract forward charge.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 7; Section 2(10) of the Insurance Act, 1938

Question 6 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Reclaim Associates provides recovery services worth ₹4,00,000 to Vikramaditya Finance Ltd., a registered NBFC. DebtHelp Pvt. Ltd. provides recovery services worth ₹3,50,000 to Rajdhani Bank Ltd., a registered banking company. Both suppliers act as recovery agents. Calculate the combined GST liability under RCM of the NBFC and the bank at the assumed rate of 18%.

1. ₹67,500, being 18% of only the NBFC's recovery services.
2. ₹1,35,000, comprising CGST ₹67,500 and SGST ₹67,500. (correct answer)
3. ₹1,35,000, payable equally by the two recovery agencies under forward charge.
4. ₹1,08,000, after excluding the corporate recovery agency's service.

Answer: B — ₹1,35,000, comprising CGST ₹67,500 and SGST ₹67,500.

Explanation. Sl. No. 8 covers services supplied by a recovery agent to a banking company, financial institution or NBFC. Both recipients qualify, and the supplier category is not restricted to proprietorship concerns. Aggregate value = ₹4,00,000 + ₹3,50,000 = ₹7,50,000. Total GST = ₹7,50,000 × 18% = ₹1,35,000. CGST = ₹67,500 and SGST = ₹67,500, payable by the NBFC and bank under RCM respectively.

Where it goes wrong. Assuming that a recovery agent incorporated as a company cannot supply services attracting RCM.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 8

Question 7 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Reclaim Associates also provides recovery services worth ₹2,50,000 to Aryan Steels Ltd., a manufacturing company. The assignment relates to overdue trade receivables from customers and not to any loan or banking transaction. Which treatment follows under the notified recovery-agent RCM entry, assuming that the service is taxable at 18%?

1. Aryan pays ₹45,000 under RCM because it is a registered recipient.
2. Aryan pays ₹22,500 under RCM as the CGST component only.
3. No GST is payable because recovery of trade dues is an exempt service.
4. Reclaim Associates pays ₹45,000 under forward charge, comprising equal CGST and SGST. (correct answer)

Answer: D — Reclaim Associates pays ₹45,000 under forward charge, comprising equal CGST and SGST.

Explanation. The recovery-agent RCM entry specifically identifies a banking company, financial institution or NBFC as recipient. Aryan Steels is a manufacturing company, so the recipient condition is not satisfied. The supplier therefore pays tax under forward charge. Total GST = ₹2,50,000 × 18% = ₹45,000. CGST = ₹22,500 and SGST = ₹22,500. Registration of the recipient alone does not extend this notified entry.

Where it goes wrong. Applying recovery-agent RCM to every registered recipient without identifying the specified recipient categories.

Authority. Section 9(1) and section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 8

Question 8 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

For the recovery service supplied to Vikramaditya Finance Ltd., the supplier's invoice is dated 10 September 2026. The NBFC enters the payable in its books on 30 October, and the bank account is debited on 1 November. The date immediately following sixty days from the invoice date is 10 November. Determine the time of supply under section 13(3), applying the earlier-payment rule.

1. 10 September 2026, the date of the supplier's invoice.
2. 1 November 2026, the date of bank debit.
3. 30 October 2026, the date of entry in the NBFC's books. (correct answer)
4. 10 November 2026, the date after sixty days from the invoice.

Answer: C — 30 October 2026, the date of entry in the NBFC's books.

Explanation. For services under RCM, section 13(3) selects the earlier of the payment date or the date immediately following sixty days from the supplier's invoice. Payment is the earlier of the book-entry date and bank-debit date: 30 October versus 1 November. The alternative statutory date is 10 November. Comparing 30 October and 10 November, the earlier date is 30 October 2026, which determines the time of supply.

Where it goes wrong. Selecting the date of actual bank payment without first comparing it with the earlier book-entry date.

Authority. Section 13(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 8

Question 9 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Nandini Real Estates Pvt. Ltd., registered under GST in Karnataka under the regular scheme, manages commercial and residential properties. On 1 September 2026, it enters into a residential lease with Mr. Das, an unregistered individual, for a flat in Bengaluru. The monthly rent is ₹1,20,000. Nandini uses the flat exclusively to provide residential accommodation to its employees posted in Bengaluru. On 15 September, Smt. Anuradha Sen, a registered sole proprietor, rents a residential apartment from another unregistered individual at ₹70,000 per month. Anuradha occupies the apartment herself as her residence. The lease is executed by her in her personal capacity, on her own account, and the rent is not borne by her proprietorship concern. Separately, GuardPro Services, a sole-proprietorship security agency, supplies security personnel to Nandini for ₹3,00,000 in September. GuardPro issues a monthly service invoice. ShieldSecure Pvt. Ltd., a registered company, provides security personnel to Nandini for a separate contract value of ₹2,00,000. Another contract of GuardPro involves supplying security personnel worth ₹1,50,000 to Prakash Traders, a registered taxpayer who has opted for composition levy. GuardPro also supplies security personnel worth ₹50,000 to a State Government department registered solely for deduction of TDS under section 51, without making taxable outward supplies. All parties are located in Karnataka and all services are intra-State. Assume an 18% GST rate for taxable renting and security services. The property and security service providers have separate contracts and invoices. Nandini's accountant proposes to apply RCM to every service received from an unregistered or non-corporate supplier, whereas Anuradha's accountant claims that registration always results in RCM on a residential lease. The company must examine the residential-renting entry, the limited personal-residence exemption and the special exclusions applicable to security services.

Nandini Real Estates Pvt. Ltd. rents a residential flat from an unregistered individual for ₹1,20,000 per month. The registered company uses the apartment to provide residential accommodation to its employees. Assuming that the renting service is taxable at 18%, identify the applicable liability and calculate the combined CGST and SGST payable by Nandini for one month's rent.

1. The landlord pays ₹21,600 under forward charge because the flat is used for residence.
2. No GST applies because renting of every residential dwelling is exempt.
3. The company pays ₹10,800 under RCM as CGST alone.
4. The company pays ₹21,600 under RCM, comprising ₹10,800 each as CGST and SGST. (correct answer)

Answer: D — The company pays ₹21,600 under RCM, comprising ₹10,800 each as CGST and SGST.

Explanation. Sl. No. 5AA covers renting of a residential dwelling to any registered person, with any person as supplier. Nandini is registered, and the residential flat is received by it for employee accommodation. The special RCM entry applies. Total GST = ₹1,20,000 × 18% = ₹21,600. CGST = ₹10,800 and SGST = ₹10,800, payable by Nandini. The residential character of the premises does not itself preserve exemption when the recipient is registered.

Where it goes wrong. Assuming that the residential use of the property automatically makes the rent exempt even when the tenant is a registered person.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 5AA; Notification No. 05/2022-Central Tax (Rate), dated 13.07.2022

Question 10 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Smt. Anuradha Sen is a registered proprietor under GST. She rents an apartment from an unregistered individual for ₹70,000 per month. She occupies it as her own residence and executes the lease in her personal capacity, on her own account, without charging the rent to her proprietorship concern. Which treatment applies under the residential-dwelling exemption and the associated RCM notification?

1. The rent is exempt under entry 12 of Notification No. 12/2017, and RCM is nil. (correct answer)
2. Anuradha pays ₹12,600 under RCM because her proprietorship holds GST registration.
3. The landlord pays ₹12,600 under forward charge because Anuradha uses the flat personally.
4. Anuradha pays ₹6,300 under RCM because only CGST is attracted.

Answer: A — The rent is exempt under entry 12 of Notification No. 12/2017, and RCM is nil.

Explanation. The explanation inserted in entry 12 covers a registered proprietor who rents a residential dwelling in personal capacity for use as own residence and on own account, not that of the proprietorship concern. All conditions are met. Without exemption, monthly GST would be ₹70,000 × 18% = ₹12,600, but the exemption reduces the amount payable to nil. Therefore, no CGST, SGST or RCM is payable by Anuradha.

Where it goes wrong. Assuming that every registered proprietor loses the residential-renting exemption merely because the proprietorship has obtained GST registration.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 12/2017-Central Tax (Rate), Sl. No. 12; Notification No. 15/2022-Central Tax (Rate), dated 30.12.2022; Notification No. 13/2017-Central Tax (Rate), Sl. No. 5AA

Question 11 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

GuardPro Services, a sole-proprietorship security agency, supplies security personnel to Nandini Real Estates Pvt. Ltd., which is registered under the regular GST scheme. The monthly contract value for September 2026 is ₹3,00,000. Determine the applicable RCM liability of Nandini at 18%, considering the legal form of the service provider and the registration status of the recipient.

1. GuardPro pays ₹54,000 under forward charge because security services are supplied by an agency.
2. Nandini pays ₹27,000 under RCM as the central component alone.
3. Nandini pays ₹54,000 under RCM, comprising equal CGST and SGST. (correct answer)
4. No GST applies because supply of security personnel is exempt.

Answer: C — Nandini pays ₹54,000 under RCM, comprising equal CGST and SGST.

Explanation. Sl. No. 14 covers security services provided by way of supply of security personnel by any person other than a body corporate to a registered person. GuardPro is a proprietorship and Nandini is a regular registered recipient. Hence, RCM applies. Total GST = ₹3,00,000 × 18% = ₹54,000. CGST = ₹27,000 and SGST = ₹27,000. The recipient must discharge both components.

Where it goes wrong. Mistaking a proprietorship security agency for a body corporate or overlooking the requirement that the recipient must be registered.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 14

Question 12 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

GuardPro Services provides security personnel worth ₹1,50,000 to Prakash Traders, a registered composition taxpayer, and worth ₹50,000 to a State Government department registered exclusively for section 51 TDS purposes. ShieldSecure Pvt. Ltd., a body corporate, separately supplies security personnel worth ₹2,00,000 to Nandini Real Estates Pvt. Ltd. Which treatment correctly identifies the supplier liable to pay GST on these three contracts?

1. Prakash Traders pays RCM and the Government department pays forward charge.
2. GuardPro pays forward charge on ₹2,00,000; ShieldSecure pays forward charge on ₹2,00,000. (correct answer)
3. All three recipients pay RCM because each has GST registration.
4. Only ShieldSecure is liable under RCM because it is a body corporate.

Answer: B — GuardPro pays forward charge on ₹2,00,000; ShieldSecure pays forward charge on ₹2,00,000.

Explanation. The security RCM entry excludes composition taxpayers and specified government departments registered only for section 51 TDS. Thus, neither GuardPro transaction attracts RCM. GuardPro pays forward charge on ₹1,50,000 + ₹50,000 = ₹2,00,000; GST = ₹2,00,000 × 18% = ₹36,000. ShieldSecure is a body corporate, so its supply also falls outside the security RCM entry. It separately pays forward charge on ₹2,00,000 × 18% = ₹36,000.

Where it goes wrong. Treating every GST-registered recipient as a specified RCM recipient without applying the composition and TDS-only government exclusions.

Authority. Section 9(1) and section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 14; Section 51 of the CGST Act, 2017

Question 13 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

During September 2026, Aryan Steels Ltd. pays its whole-time director ₹9,00,000 as salary under an employment contract and ₹2,40,000 as separately classified board commission for services in the capacity of director. The salary is subjected to TDS under section 192, while the commission is subjected to TDS under section 194J. Assuming an 18% GST rate, determine the company's total RCM liability on these two amounts and the reason for excluding any part of the remuneration.

1. ₹2,05,200, being 18% on both salary and commission.
2. ₹43,200, being 18% on commission alone under the director entry. (correct answer)
3. ₹21,600, being 9% on commission alone under RCM.
4. Nil, since an employee director cannot receive taxable remuneration.

Answer: B — ₹43,200, being 18% on commission alone under the director entry.

Explanation. Salary for services in the course of employment is excluded by Schedule III. The commission is separately classified as non-salary remuneration for services in the capacity of director and attracts RCM. Taxable value = ₹2,40,000. CGST = ₹2,40,000 × 9% = ₹21,600; SGST = ₹21,600. Total RCM = ₹43,200. The ₹9,00,000 salary is excluded and does not form part of the tax base.

Where it goes wrong. Ignoring the distinction between salary under section 192 and non-salary director remuneration separately recorded under section 194J.

Authority. Schedule III, paragraph 1 of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 6; Circular No. 140/10/2020-GST dated 10.06.2020

Question 14 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Mehta, a registered director of Vikramaditya Tech Labs Pvt. Ltd., leases a commercial building owned by him personally to that company for ₹1,50,000 per month during July, August and September 2026. He does not supply the service in his capacity as director and issues regular GST tax invoices. The company proposes RCM because the landlord is a director. Examine the position under both the director-service entry and the unregistered-property-renting entry.

1. The company pays ₹81,000 under RCM because Mr. Mehta is a director.
2. The company pays ₹40,500 under RCM on half the rental value.
3. The company pays ₹81,000 because all commercial property rent attracts RCM.
4. No RCM applies; the registered landlord pays ₹81,000 under forward charge. (correct answer)

Answer: D — No RCM applies; the registered landlord pays ₹81,000 under forward charge.

Explanation. The service is provided in the director's personal capacity and not as director, so Sl. No. 6 does not apply. Sl. No. 5AB covers renting of immovable property only when the supplier is unregistered. Mr. Mehta is registered. Total rental value = ₹1,50,000 × 3 = ₹4,50,000. Forward-charge GST = ₹4,50,000 × 18% = ₹81,000, comprising CGST ₹40,500 and SGST ₹40,500, payable by the landlord.

Where it goes wrong. Applying director RCM based on the person's designation while ignoring the capacity in which the service is supplied.

Authority. Section 9(1) and section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. Nos. 6 and 5AB; Circular No. 201/13/2023-GST dated 01.08.2023

Question 15 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

An individual insurance agent licensed under section 42 of the Insurance Act, 1938 earns commission of ₹7,50,000 during October 2026 from a registered insurance company carrying on life insurance business. The agent also provides independent customer-acquisition consultancy worth ₹2,00,000 to a textile manufacturer. Assume both services are taxable at 18%. Calculate the insurance company's RCM liability, and identify who pays tax on the consultancy service.

1. Insurer pays ₹1,35,000 under RCM; the agent pays ₹36,000 under forward charge. (correct answer)
2. Insurer pays ₹1,71,000 under RCM on both assignments.
3. The agent pays ₹1,35,000 under forward charge on the insurance commission.
4. The textile manufacturer pays ₹36,000 under RCM on consultancy.

Answer: A — Insurer pays ₹1,35,000 under RCM; the agent pays ₹36,000 under forward charge.

Explanation. The insurer is liable under RCM on the insurance-agent commission. Its liability is ₹7,50,000 × 18% = ₹1,35,000. The separate consultancy is supplied to a textile manufacturer, not a person carrying on insurance business. Hence, the specific RCM entry does not apply to that service. Forward-charge GST on consultancy is ₹2,00,000 × 18% = ₹36,000, payable by the individual supplier.

Where it goes wrong. Extending the insurance-agent RCM entry to unrelated consultancy supplied by the same individual to a non-insurance recipient.

Authority. Section 9(1) and section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 7; Section 2(10) of the Insurance Act, 1938

Question 16 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Recovery Associates supplies recovery services worth ₹4,00,000 to a registered NBFC and ₹2,00,000 to an automobile manufacturing company. The supplier is a registered private limited company and operates as a recovery agent in both transactions. Assuming an 18% GST rate, determine the RCM liability of the NBFC and the person liable on the automobile manufacturer's transaction.

1. The NBFC pays ₹36,000 under RCM, and the manufacturer pays ₹36,000 under RCM.
2. Recovery Associates pays ₹1,08,000 under forward charge on both assignments.
3. The NBFC pays ₹72,000 under RCM; Recovery Associates pays ₹36,000 under forward charge. (correct answer)
4. Both recipients pay ₹1,08,000 under RCM because they are registered persons.

Answer: C — The NBFC pays ₹72,000 under RCM; Recovery Associates pays ₹36,000 under forward charge.

Explanation. The NBFC is a specified recipient under Sl. No. 8. Its RCM liability is ₹4,00,000 × 18% = ₹72,000, comprising CGST ₹36,000 and SGST ₹36,000. The automobile manufacturer is not a banking company, financial institution or NBFC. Thus, its ₹2,00,000 recovery service attracts forward charge: ₹2,00,000 × 18% = ₹36,000, payable by Recovery Associates. Supplier incorporation does not restrict the notified entry.

Where it goes wrong. Focusing on the recovery agent's corporate status instead of testing the nature of the recipient for each assignment.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 8

Question 17 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

An unregistered landlord lets out a residential dwelling to a registered company for ₹95,000 per month. The company uses the apartment to provide residential accommodation to its employees. In a separate transaction, a registered proprietor rents a residential dwelling from another unregistered landlord for personal residence on his own account. Assuming an 18% GST rate, identify the treatment of the company's rent and the proprietor's rent for September 2026.

1. Company pays ₹17,100 under RCM; proprietor's personal rent is exempt. (correct answer)
2. Both recipients pay ₹17,100 under RCM because both hold registration.
3. Neither recipient pays GST because the premises are residential dwellings.
4. The company pays ₹8,550 under RCM and the proprietor pays ₹17,100.

Answer: A — Company pays ₹17,100 under RCM; proprietor's personal rent is exempt.

Explanation. The company's residential lease is covered by Sl. No. 5AA because the recipient is registered. GST = ₹95,000 × 18% = ₹17,100, payable under RCM. The proprietor's rent is separately exempt because he rents the dwelling in personal capacity for own residence and on his own account. Therefore, the proprietor's taxable value for this transaction is effectively nil and no RCM arises.

Where it goes wrong. Assuming that the personal-residence explanation exempts every registered tenant rather than only the qualifying registered proprietor.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 5AA; Notification No. 12/2017-Central Tax (Rate), Sl. No. 12; Notification No. 15/2022-Central Tax (Rate), dated 30.12.2022

Question 18 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered company receives security services from a sole-proprietorship agency for ₹5,00,000. It also receives security services worth ₹2,00,000 from a private limited company, ₹1,50,000 from a sole proprietor while registered under composition levy, and ₹1,00,000 from a sole proprietor while acting as a Government department registered exclusively for TDS under section 51. Assuming the services are taxable at 18%, calculate the recipient's aggregate RCM liability.

1. ₹1,71,000, being 18% of all security service purchases.
2. ₹1,35,000, including the services provided by the corporate agency.
3. ₹1,08,000, after excluding only the composition taxpayer's supply.
4. ₹90,000, being 18% of the qualifying sole-proprietor supply alone. (correct answer)

Answer: D — ₹90,000, being 18% of the qualifying sole-proprietor supply alone.

Explanation. Only the first supply meets the security RCM conditions: non-body corporate supplier and regular registered recipient. The corporate supplier is excluded by the supplier condition; composition recipients and TDS-only government departments are also excluded. Qualifying value = ₹5,00,000. RCM = ₹5,00,000 × 18% = ₹90,000, comprising CGST ₹45,000 and SGST ₹45,000. The other service values are not included in the recipient's RCM computation.

Where it goes wrong. Including composition recipients and TDS-only government departments in the security RCM base merely because they hold GST registrations.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 14; Section 51 of the CGST Act, 2017

Question 19 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Steels Ltd., a regular registered manufacturer, purchases office furniture worth ₹3,00,000 and stationery worth ₹80,000 from two unregistered local suppliers during October 2026. Neither purchase falls within a notified category of supplies under section 9(3), and Aryan is not a member of any notified class of recipients for these goods. The accounts team proposes RCM under section 9(4) merely because the suppliers are unregistered. Determine the correct legal position.

1. Aryan pays ₹68,400 under RCM on the combined purchase value.
2. No general RCM applies merely because the suppliers are unregistered. (correct answer)
3. Aryan pays ₹54,000 under RCM on furniture alone.
4. Both suppliers become liable to collect GST from Aryan under forward charge.

Answer: B — No general RCM applies merely because the suppliers are unregistered.

Explanation. Section 9(4), after amendment, applies only to a notified class of registered recipients and specified categories received from an unregistered supplier. Aryan is an ordinary manufacturer, not a notified promoter for these purchases, and the goods are not covered by a separate notified entry. Combined value = ₹3,00,000 + ₹80,000 = ₹3,80,000. Although 18% would mathematically produce ₹68,400, no RCM liability arises under section 9(4) on these facts.

Where it goes wrong. Applying the earlier blanket reverse-charge rule to every taxable purchase from an unregistered supplier.

Authority. Section 9(3) and section 9(4) of the CGST Act, 2017; Central Goods and Services Tax (Amendment) Act, 2018, section 4; Notification No. 07/2019-Central Tax (Rate), dated 29.03.2019

Question 20 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered real-estate promoter has aggregate input and input-service procurement of ₹1,00,00,000 during FY 2026-27, excluding the categories excluded under the applicable construction-rate conditions. Of this, ₹74,00,000 is procured from registered suppliers and ₹4,00,000 represents inward supplies on which GST has already been paid under RCM and which are deemed to have been purchased from registered persons. The promoter has no other qualifying procurement from registered suppliers. Determine the shortfall against the prescribed 80% threshold and the additional GST payable at 18% under section 9(4).

1. ₹1,80,000, being 18% of the full unregistered procurement.
2. ₹72,000, being 18% of the registered procurement already made.
3. ₹36,000, being 18% of the ₹2,00,000 shortfall. (correct answer)
4. Nil, because RCM purchases are never counted in the 80% calculation.

Answer: C — ₹36,000, being 18% of the ₹2,00,000 shortfall.

Explanation. Required registered procurement = ₹1,00,00,000 × 80% = ₹80,00,000. Supplies on which tax has already been paid under RCM are deemed to be procured from registered suppliers. Eligible procurement = ₹74,00,000 + ₹4,00,000 = ₹78,00,000. Shortfall = ₹80,00,000 − ₹78,00,000 = ₹2,00,000. Additional GST = ₹2,00,000 × 18% = ₹36,000, payable by the promoter under RCM.

Where it goes wrong. Ignoring the deemed-registered treatment of inward RCM purchases or calculating the shortfall without first applying the 80% procurement test.

Authority. Section 9(4) of the CGST Act, 2017; Notification No. 07/2019-Central Tax (Rate), dated 29.03.2019; Notification No. 03/2019-Central Tax (Rate), dated 29.03.2019

Question 21 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered promoter constructing residential apartments procures cement worth ₹8,00,000 directly from an unregistered supplier in December 2026. Its registered-supplier procurement of other inputs and input services already exceeds the required 80% threshold. The promoter argues that the separate cement RCM cannot apply because its overall procurement ratio is satisfactory. Assuming a total applicable GST rate of 18% on the cement, determine the recipient-side liability.

1. No RCM arises because the 80% procurement condition is already fulfilled.
2. The supplier pays ₹1,44,000 under forward charge because it is unregistered.
3. The promoter pays ₹72,000 under RCM as CGST only.
4. The promoter pays ₹1,44,000 under RCM, irrespective of the 80% threshold. (correct answer)

Answer: D — The promoter pays ₹1,44,000 under RCM, irrespective of the 80% threshold.

Explanation. Cement procured by a promoter from an unregistered supplier is independently covered by the notified section 9(4) category. This liability is not dependent on whether the promoter has met the 80% registered-procurement condition. GST = ₹8,00,000 × 18% = ₹1,44,000. CGST = ₹72,000 and SGST = ₹72,000. The promoter must pay both components under RCM even when its other procurement ratio satisfies the threshold.

Where it goes wrong. Treating the 80% procurement test as a condition that overrides the separate RCM entry for cement purchased from an unregistered supplier.

Authority. Section 9(4) of the CGST Act, 2017; Notification No. 07/2019-Central Tax (Rate), dated 29.03.2019; Notification No. 03/2019-Central Tax (Rate), dated 29.03.2019

Question 22 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered property promoter purchases construction machinery classified as capital goods from an unregistered supplier for ₹12,00,000 during November 2026. The machinery is directly used in construction of the promoter's residential real-estate project. The promoter's registered-supplier procurement of ordinary inputs and input services already exceeds 80%. Assuming an 18% GST rate, calculate the tax payable under section 9(4) and identify the person liable.

1. The promoter pays ₹1,08,000, being CGST alone under RCM.
2. The promoter pays ₹2,16,000 under RCM, comprising equal CGST and SGST. (correct answer)
3. The unregistered supplier pays ₹2,16,000 under forward charge.
4. No GST applies because the promoter has fulfilled the 80% procurement condition.

Answer: B — The promoter pays ₹2,16,000 under RCM, comprising equal CGST and SGST.

Explanation. Capital goods supplied by an unregistered supplier to a promoter form a separate notified category under section 9(4). The 80% registered-procurement condition does not remove this independent liability. Total tax = ₹12,00,000 × 18% = ₹2,16,000. CGST = ₹12,00,000 × 9% = ₹1,08,000. SGST = ₹1,08,000. The promoter, and not the unregistered supplier, is liable under RCM.

Where it goes wrong. Assuming that the promoter's achievement of the 80% threshold automatically removes RCM on every type of unregistered inward supply.

Authority. Section 9(4) of the CGST Act, 2017; Notification No. 07/2019-Central Tax (Rate), dated 29.03.2019

Question 23 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered NBFC receives recovery-agent services under section 9(3). The recovery agent issues its invoice on 16 September 2026. The NBFC makes payment on 5 November, which is first entered in its books on that date, and the bank debit occurs on 7 November. The date immediately following sixty days from the supplier's invoice is 16 November 2026. Determine the time of supply under section 13(3) and state which date is relevant for determining the tax period.

1. 16 September 2026, because the supplier's invoice date always governs RCM.
2. 7 November 2026, because bank debit supersedes the books entry.
3. 5 November 2026, being the earlier payment date under section 13(3). (correct answer)
4. 16 November 2026, because the sixty-day date is mandatory in all cases.

Answer: C — 5 November 2026, being the earlier payment date under section 13(3).

Explanation. Under section 13(3), the time of supply is the earlier of payment or the date immediately following sixty days from the supplier's invoice. Payment is taken as the earlier of the books entry and bank debit: 5 November versus 7 November. The alternative statutory date is 16 November. The earlier of 5 November and 16 November is 5 November 2026. Therefore, this date determines the tax period.

Where it goes wrong. Automatically choosing the sixty-day date or bank debit without comparing all the statutory alternatives.

Authority. Section 13(3) of the CGST Act, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 8

Question 24 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered real-estate promoter receives capital goods from an unregistered supplier on 4 September 2026 and becomes liable to pay RCM under section 9(4). The supplier issues a delivery document but does not issue a GST tax invoice. The promoter issues its recipient invoice on 5 October 2026. Determine the deadline prescribed under Rule 47A and whether the promoter has complied with the statutory invoice requirement.

1. The deadline was 4 October; the invoice issued on 5 October is late by one day. (correct answer)
2. The deadline was 19 October; the invoice is within the prescribed time.
3. The deadline was 5 November; the invoice is within the prescribed time.
4. No recipient invoice is required because the supplier has issued a delivery document.

Answer: A — The deadline was 4 October; the invoice issued on 5 October is late by one day.

Explanation. Section 31(3)(f) requires the registered recipient liable under section 9(4) to issue an invoice where the supplier is unregistered. Rule 47A prescribes thirty days from receipt of the supply. Goods were received on 4 September; the thirtieth day falls on 4 October 2026. The recipient issued the invoice on 5 October, one day after the deadline. The delivery document does not replace the recipient's statutory invoice.

Where it goes wrong. Counting the thirty-day period from the supplier's delivery document date or assuming that the supplier's delivery document satisfies section 31(3)(f).

Authority. Section 31(3)(f) of the CGST Act, 2017; Section 9(4) of the CGST Act, 2017; Rule 47A of the CGST Rules, 2017

Question 25 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered NBFC reports CGST of ₹2,40,000 payable under RCM on recovery-agent services in its September 2026 return, due on 20 October 2026. It does not deposit the tax until 20 November 2026. A notice under section 74A is issued on 22 November, and the NBFC pays tax and interest within sixty days of the notice. There is no fraud or wilful misstatement. Assuming simple interest at 18% per annum and a 365-day year, calculate the interest and determine the penalty consequence under section 74A(11).

1. Interest ₹2,465.75; no penalty because payment followed the notice.
2. Interest ₹3,669.04; penalty ₹10,000 as the minimum amount.
3. Interest ₹3,240; penalty nil because the case is non-fraudulent.
4. Interest ₹3,669.04; penalty ₹24,000 notwithstanding payment within sixty days. (correct answer)

Answer: D — Interest ₹3,669.04; penalty ₹24,000 notwithstanding payment within sixty days.

Explanation. Interest runs from 21 October to 20 November, a total of 31 days. Interest = ₹2,40,000 × 18% × 31/365 = ₹3,669.04. Under section 74A(5)(i), non-fraud penalty is the higher of 10% of tax or ₹10,000. Ten per cent of ₹2,40,000 = ₹24,000. Section 74A(11) makes this penalty payable because self-assessed tax remained unpaid beyond thirty days from its due date, notwithstanding payment within sixty days of the notice.

Where it goes wrong. Applying the ordinary sixty-day notice-stage penalty relief without considering the specific restriction relating to self-assessed tax unpaid beyond thirty days.

Authority. Section 50(1) of the CGST Act, 2017; Section 74A(5)(i) of the CGST Act, 2017; Section 74A(8)(ii) of the CGST Act, 2017; Section 74A(11) of the CGST Act, 2017; Notification No. 13/2017-Central Tax, dated 28.06.2017