Reverse Charge under GST, Reverse Charge Mechanism under GST – “Reverse Charge” means the liability to pay tax by the recipient of goods or services or both instead of the supplier of such goods or services or both under subsection (3) or sub-section (4) of section 9 of the Central Goods and Services Tax Act, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.
Complete Details as Per Model GST Law, Reverse Charge Applicability as Per GST Model Law, Check all Rules for Reverse Charge under GST Law. Applicability of Reverse Charge as Per Revised Model GST Law in India. Meaning of Reverse Charge as per GST Law, Introduction of Reverse Charge as Per GST Law, GST Reverse charge mechanism. Later part of Section 8(3) talks about reverse charge applicability for specified categories of services, wherein the recipient of goods or services would be liable to for paying tax in relation to supply of goods and or services. Now scroll down below n check more details for “Reverse Charge under GST – Complete Details as Per Model GST Law”
Important Update for GST Reverse Charge on 06-10-2017
The reverse charge mechanism under sub-section (4) of section 9 of the CGST Act, 2017 and under sub-section (4) of section 5 of the IGST Act, 2017 shall be suspended till 31.03.2018. Specific reverse charge u/s 9(3) shall continue.
or in Simple Words
The reverse charge mechanism U/s 9 (4) of the CGST Act, 2017 & U/s 5 (4) of the IGST Act, 2017 suspended till 31.03.2018. Specific reverse charge u/s 9(3) shall continue.
In India, the concept of reverse charge under GST is being introduced which is already present in service tax. Currently, there is reverse charge mechanism in supply of services only. But in GST RCM applicable for both services and goods.
Reverse Charge under GST Regime
Applicabilty:
All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold Threshold:- turnover in a financial year exceeds Rs 20lakhs (Rs 10 lakhs for North eastern states).
A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of Rs. 20 lakhs (Rs. 10 lakhs for special category states except J & K) is not applicable to him.
Reverse Charge Mechanism under GST with Example
1) under reverse charge mechanism only the buyer is the responsible person to pay the GST tax because the registration was not taken from the department by the seller
2)Here the buyer should not claim any input tax credit on his purchase because he did not paid it but GST will be collected from him on his sale
In reverse charge mechanism the buyer of the goods did not setoff any taxes from his output tax because he did not paid any tax on his purchase.
The entire amount of output tax liability has to paid to the GST DEPARTMENT
Example – Q) Ravi has purchased 10000 value of the goods from the dev and the GST rate is 10%(SUPPOSE). But the DEV was not registered with the GST department and ravi is selling these goods for 12000
Solution: ( under reverse charge mechanism)
- Ravi did not paid any GST TAX that is 1000 (10000*10%) but from his sale he will collect 1200 GST TAX( 12000*10%)
- Ravi should not claim any input tax of( 1000)because he did not paid it but he has to pay total amount of 1200 to the GST department.
List of Services Under Reverse Charge as Approved by GST
Invoicing rules:
Every service recipient, who is paying tax on the basis of reverse charge has to mention fact in his GST invoice that is being issued. A registered person who is liable to pay tax under reverse charge i.e., the buyer has to mandatorily issue an invoice in respect of goods or services received by him from the supplier who is not registered.
Important Articles & Files
- List of All Services Exempted in GST Regime
- GST Rate for Services 2017: List of all services Taxable in GST
- Download GST Rate Chart on Services & List of Services Exempted
- Classification Scheme for Services under GST
What is the reverse Charge mechanism under GST
In a normal course of business , Supplier has to pay tax on the Supply of goods or Service Provider has to pay on the services rendered .But in the reverse charge, recipient of goods or services or both is liable to pay GST.
In simple words, ‘Reverse Charge’ means the liability to pay tax is on the recipient of Goods or Services instead of the Supplier of goods or Service Provider. Reverse Charge appliesto both Goods as well as Services .
According to Section 9(4)of CGST Act, 2017 or Sec 5(4) of IGST Act , 2017 : The tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Section 2 (98 ) of CGST Act 2017
- the liability to pay tax by the recipient of supply of goods or services or both
- instead of the supplier of such goods or services
GST REGISTRATION UNDER RCM
All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold
[Threshold:- turnover in a financial year exceeds Rs 20lakhs (Rs 10 lakhs for North eastern and hill states)]
Situations Where The Reverse Charge Will Apply
Unregistered dealer selling to a registered dealer (In such cases, the registered dealer is required to pay GST on RCM basis for such supply.)
Services through an e-commerce operator
CBEC has notified a list of 12 services on which GST paid by the recipient on 100% reverse charge basis: the Services are (Click here to Download)
- Non-resident service provider
- Goods Transport Agencies
- Legal service by an Advocate/ Firm of Advocates
- Arbitral Tribunal
- Sponsorship Services
- Specified Services provided by Government or Local Authority to Business entity
- Services of a director to a company
- Insurance agent
- Recovery Agent of Bank/FI/ NBFC
- Transportation Services on Import
- Permitting use of Copyright
- Radio Taxi services to E-commerce aggregator (eg: Ola, Uber, etc.)
Time of Supply for Goods Under Reverse Charge
In case of reverse charge, the time of supply shall be the earliest of the following dates -:
- (a) the date of receipt of goods OR
- (b) the date of payment OR
- (c) the date immediately after THIRTY days from the date of issue of invoice by the supplier (60 days for services)
If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient
Example:
- Date of receipt of goods 15th May 2018
- Date of payment 15th July 2018
- Date of invoice 1st June 2018
- Date of entry in books of receiver 18th May 2018
Time of supply of goods 15th May 2018
If for some reason time of supply could not be determined supply under (1), (2) or (3) then it would be 18th May 2018 i.e., date of entry
Time of supply for services under reverse charge
In case of reverse charge, the time of supply shall be the earliest of the following dates
(a) The date of payment
OR
(b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods)
Example for reverse charge:
If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.
When supplier is located outside India
In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be
the date of entry in the books of account of the receiver
OR
the date of payment
whichever is earlier
Example for reverse charge:
- Date of payment 15th July 2018
- Date of invoice 1st July 2018
- Date of entry in books of receiver 18th July 2018
Time of supply of service 15th May 2018
If for some reason time of supply could not be determined supply under (a) or (b) then it would be 18th July 2018 i.e., date of entry in books.
list of services on which reverse charge is applicable
| Service Provider | Service Receiver | Service tax payable by Service recipient |
| Goods Transport Agency | Casual Taxable person, body corporate, partnership firm, any society, factory, any person registered under CGST, SGST, UTGST Act. | 100% |
| Recovery Agent | Banking Company, NBFC or any financial institution | 100% |
| A director of a company or a body corporate | A company or a body corporate | 100% |
| An individual advocate or firm of advocates | A company or a body corporate | 100% |
| An arbitral tribunal | Any business entity. | 100% |
| Taxi driver or Rent a cab operator ( if service provided by e-commerce operator) | Any person – E-commerce Operator | 100% |
| An insurance agent | Any person carrying on insurance business | 100% |
| Any person providing sponsorship services | Anybody corporate or partnership firm. | 100% |
| A person located in non-taxable territory to a person located in non-taxable territory | Importer | 100% |
| Author or music composer, photographer, artist, etc ( Transfer or permitting the use or enjoyment of a copyright) | Publisher, Music company, Producer | 100% |
| Any person who is located in a non-taxable territory | Any person located in the taxable territory other than non-assessee online recipient (Business Recipient) | 100% |
| Any person who is located in a non-taxable territory | Any person located in the taxable territory other than non-assessee online recipient (Business Recipient) | 100% |
Input Tax Credit under RCM
A supplier cannot take ITC of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax.
- The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services.
- The only condition is that the goods and services are used or will be used for business or furtherance of business.
- Unfortunately, ITC cannot be used to pay output tax, which means that payment mode is only through cash under reverse charge.
List of Services Under Reverse Charge as Approved by GST
Now check more details for “Reverse Charge under GST – Complete Details as Per Model GST Law” from below..
Must Read –
- When will GST be applicable
- GST Definition, Objective
- Supply of Goods
- Filing of GST Returns
- Returns Under GST, Returns
- GST Current Tax Structure
- Expected Scheme of GST
- GST Registrations
- GST Rates
