What is reverse charge Sec.2(98) of CGST Act :
Normally, the supplier of goods or services pays the tax on supply but in the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed. As per Section 9 (3) or (4) of the CGST Act 2017 or Section 5 (3) or (4) of IGST Act 2017.
Section 9(3) of CGST Act 2017 and Section 5(3) of IGST Act 2017:
The supply of Goods or services is notified as a supply liable to tax in the hands of the recipient.
Notification no 4/2017 Central Tax (Rate) in case of Goods and Notification no 13/2017 Central Tax (Rate) in case of services, as amended from time to time.
Supplies received from unregistered persons Section 9(4) of CGST Act 2017 and Section 5(4) of IGST Act 2017:
If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier.
The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.
For Inter-state purchase the buyer has to pay IGST. For Intra-state purchase CGST and SGST has to be paid under RCM by the Buyer.
Note: In Self Invoicing Buyer will mention all details as mentioned in case of a tax Invoice. He has to mention the name of Vendor, date, serial no, details of goods etc. He also has to mention that he is paying tax under Reverse Charge (The contents of the invoice have been prescribed in Rule 46 of the CGST Rules, 2017)
Frequently Asked Questions
Q 1. That happens if the receiver of goods and/or services is required to pay tax under Reverse Charge but is not a registered dealer?
Ans: All taxpayers required to pay tax under reverse charge have to register for GST even if their turnover is below the threshold limit. There is a mandatory requirement to take registration sec 24 of CGST Act 2017.
Q 2. Is Input Tax Credit allowed under Reverse Charge?
Ans: Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail ITC and Reserve charge has to be paid in cash only.
Q 3. What if an Input Service Distributor receives supplies liable to Reverse Charge?
Ans: An ISD cannot make purchases liable to Reverse Charge. If the ISD wants to procure such supplies and take the Reverse Charge paid as credit, the ISD should have to register as a Normal Taxpayer.
Q 4. Whether a person exclusively engaged in supplies which are under RCM is required to register under GST?
Ans: No. Such persons are exempt from registration vide Notification No. 5/2017-Central Tax, dated 19-6-2017.
Q 5. Can payment of IGST on reverse charge basis on import of goods/services be done through book entry or ITC?
Ans: No. GST payable on reverse charge basis is to be discharged through cash only. Refer Rule 85(4) of the CGST Rules, 2017.
Time Of Supply Under Reverse charge
Time Of Supply in case of Goods Section 12(3) of CGST ACT 2017
In case of reverse charge, the time of supply shall be the earliest of the following dates:
- the date of receipt of goods or
- the date of payment* or
(Date of payment here means, earlier of the following dates :
Date of payment as recorded in the books or
The date when the payment gets debited in the books of the recipient)
Eg. In case of cheque given by the buyer to the seller .
- the date immediately after 30 days from the date of issue of an invoice by the supplier
If for any reason, any of these 3 dates cannot be determined then the time of supply will be the date of entry in the books of account of the recipient.
Eg :
Date of receipt of goods is 01-06-2020
Date of Issue of Invoice is 10.06.2020
Date of Issuance of Cheque by the Buyer to the seller is 15.06.2020 and recorded in the books of account by the buyer.
Date of Amount debited from the account of buyer is 20.06.2020.
Ans. Date of payment will be earlier of (15.06.2020 or 20.06.2020) which is 15.06.2020.
Date immediately following after 30 days from date of issue of invoice is (10th july +1 = 11th july ).
So , time of supply will be earlier of ( 01.06.2020 or 11.07.2020 or 15.06.2020 ) which is 01.06.2020.
B. Time of Supply in case of Services Section 13 (3) of CGST Act 2017.
In case of reverse charge, the time of supply shall be the earliest of the following dates:
- The date of payment or
- The date immediately after 60 days from the date of issue of invoiceby the supplier
If for any reason, any of above 2 dates cannot be determined, the time of supply will be the date of entry in the books of account of the recipient.
REVERSE CHARGE ON SPECIFIED GOODS
The supply of goods under Reverse Charge Mechanism has notified vide Notification No. 4/2017-C.T. (Rate), dated 28-6-2017 as amended from time to time under Section 9(3) of the CGST Act, 2017 and the same is reproduced in the Table below :-
Table-1
Explanation. – (1) In this Table, “tariff item”, “sub-heading”, “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading or chapter, as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).
(2) The rules for the interpretation of the First Schedule to the said Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.
| S. No. | Tariff Item, Sub-heading, or Chapter | Description of Supply of Goods | Supplier of Goods | Recipient of Supply |
| (1) | (2) | (3) | (4) | (5) |
| 1. | 0801 | Cashew nuts, not shelled or peeled | Agriculturist | Any registered person |
| 2. | 1404 90 10 | Bidi wrapper leaves(tendu) | Agriculturist | Any registered person |
| 3. | 2401 | Tobacco leaves | Agriculturist | Any registered person |
| 4. | 5004 to 5006 | Silk yarn | Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn | Any registered person |
| 4A | 5201
(Effective from 15-11-2017) |
Raw cotton | Agriculturist | Any registered person |
| 5. | – | Supply of lottery | State Government, Union Territory or any local authority | Lottery distributor or selling agent.
Explanation: For the purpose of this entry lottery or Distributor or selling agent has the same meaning as Assigned to it in clause (c) of rule 2 of the Lotteries (Rrgulations) Rules,2010, made under the 2 Provisions of sub section (1) of section 11 of Lotteries (Regulations) Act 1998. |
| 6. | Any Chapter
(Effective from 13-10-2017) |
Used vehicles seized and confiscated goods, old and used goods, waste and scrap | Central Government, State Government, Union territory or a Local authority. | Any registered person |
| 7.
|
Any Chapter
(Effective from 28-5-2018) |
Priority Sector Lending Certificate | Any registered person | Any registered person |
Reverse charge on specified services
The supply of services under reverse charge mechanism has been notified vide Notification No. 13/2017-C.T. (Rate), dated 28-6-2017 as amended from time to time under Section 9(3) of the CGST Act, 2017 and the list of services that will be under reverse charge as notified by the Central Government is given in table 2 below :-
| Sr . No. | Category of Supply of Services | Supplier of Service | Recipient of service |
| (1) | (2) | (3) | (4) |
| 1. | GTA Services :
Supply of Services by a Goods Transport Agency (GTA) who has not paid central tax @ 6% in respect of transportation of goods by road to – (a) any factory registered under or governed by the Factories Act, 1948; or (b) any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or (c) any cooperative society established by or under any law; or (d) any person registered under CGST/ (e) anybody corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person; located in the taxable territory. “Provided that nothing contained in this entry shall apply to services provided by a goods transport agency, by way of transport of goods in a goods carriage by road, to, – (a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Governmental agencies, which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under Section 51 and not for making a taxable supply of goods or services.” |
Goods Transport Agency (GTA) | (a) any factory registered under or governed by the Factories Act, 1948; or
(b) any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or (c) any cooperative society established by or under any law; (d) any person registered under CGST/IGST/ (e) anybody corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person located in the taxable territory. |
| 2. | Legal Services
Services provide by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly. Explanation. – ‘Legal service’ means any service provided in relation to advice, consultancy or assistance in any manner and includes representational services before any Court, Tribunal or Authority. |
An individual advocate including a senior advocate or firm of advocates. | Any business entity located in the taxable territory. |
| 3 | Arbitral Services
Services supplied by an arbitral Tribunal to a business entity. |
An arbitral Tribunal | Any business entity located in the taxable territory. |
| 4 | Sponsorship Services
Service provided by way of Sponsorship Service to anybody corporate or partnership firm. |
Any person | Anybody corporate or partnership firm located in the taxable territory. |
| 5 | Government Services :
Services supplied by the Central Government, State Government, Union territory or local (A) renting of immovable property service, and (B) services specified below :- (i) services by the Department of posts by way of speed post, life insurance, express parcel post and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. |
Central Government, State Government, Union territory or Local Authority | Any Business Entity located in the taxable territory. |
| 5A | Services by the Government: Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (with effect from 25-1-2018. | Central Government, State Government, Union territory or Local Authority. | Any person registered under the Central Goods and Services Tax Act, 2017 |
| 5B | Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter. | Any Person | Promoter |
| 5C | Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter. | Any person | Promoter |
| 6 | Services by the Director: Services supplied by a director of a company or a body corporate to the said company or the body corporate. | A director of a company or a body corporate | A company or a body corporate located in the taxable territory |
| 7 | Insurance Agent Service: Services provided by an insurance agent to person carrying on insurance business. | An Insurance Agent | Any person carrying on insurance business, located in the taxable territory. |
| 8 | Recovery Agent Service: Services provided by a recovery agent to a banking company or a financial institution or a non-banking financial company. | A Recovery Agent | Banking company or financial institution or a non-banking financial company, located in the taxable territory. |
| 9 | Copyright Service
Supply of Services by a music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of Section 13 of the Copyright Act, 1957 relating to original dramatic, musical or artistic works to a music company, producer or the like. |
Music composer, photographer, artist, or the like. | The Music company, producer or the like, located in the taxable territory. |
| 9A | Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of subsection (1) of section 13 of the Copyright Act, 1957 relating to original literary works to a publisher.
( Sl.9 & 9A changes carried vide Notification No.22/2019-C.T (Rate) dated 30.09.2019 with effect from 1’st October,2019 |
Author | Publisher located in the taxable territory:-
Provided that nothing contained in this entry shall apply where:- (i) the author has taken registration under the Central Goods and Services Tax Act,2017 (12 of 2017), and filed a declaration , in form at annexure I, within the time limit prescribed therein, with the jurisdictional CGST or SGST commissioner, as the case may be, that he exercises the option to pay central tax on the service specified in column (2), under forward charge in accordance with Section 9 (1) of the Central Goods and Service Tax Act, 2017 under forward charge, and to comply with all the provisions of Central Goods and Service Tax Act, 2017 (12 of 2017) as they apply to a person liable for paying the tax in relation to the supply of any goods or services or both and that he shall not withdraw the said option within a period of 1 year from the date of exercising such option; (ii) the author makes a declaration, as prescribed in Annexure II on the invoice issued by him in Form GST Inv-I to the publisher. ”; |
| 10 | Reserve Bank Services :
Supply of services by the members of Overseeing Committee to (Reserve Bank of India Effective from 13-10-2017) |
Members of Overseeing Committee constituted by the Reserve Bank of India. | Reserve Bank of India |
| 11
|
Services by DSAs:
Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs) Effective from 27-7-2018). |
Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm. | A banking company or a non-banking financial company, located in the taxable territory. |
| 12 | Services provided by Business Facilitator (BF) to a banking company. | Business facilitator (BF) | A banking company, located in the taxable territory. |
| 13 | Services provided by an agent of Business Correspondent (BC) to Business Correspondent (BC). | An agent of Business Correspondent (BC). | A business correspondent, located in the taxable territory. |
| 14 | Security Services (services provided by way of supply of security personnel) provided to a registered person :
Provided that nothing contained in the entry shall apply to,- (i)(a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Government agencies; which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under Section 51 of the said Act and not for making a taxable supply of goods or services; or (ii) a registered person paying tax under Section 10 of the said Act. Sl. No. 12 to 14 vide Notification No. 29/2018-C.T. (Rate) dated 31-12-2018. w.e.f. 1-1-2019) |
Any person other than a body corporate. | A registered person, located in the “taxable territory.” |
| 15 | Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate.
Notification No.29/2019-Central Tax (Rate), dated 31.12.2019. |
Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6% to the service recipient. | Any body corporate located in the taxable territory”. |
|
16 |
Services of lending securities of Securities under Lending scheme, 1997 (Scheme). Securities and Exchange Board of India (SEBI), as amended.
Sl.16 changes have carried vide Notification No.22/2019-C.T (Rate) dated 30.09.2019 with effect from 1’st October, 2019. |
Lender i.e. a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under the scheme of SEBI. | Borrower i.e. a person who borrows the securities under the Scheme through an approved intermediary of SEBI). |
The cited table is showing the list of services as notified by the Government and approved by the GST Council for levy of GST under reverse charge.
Additional Services on which tax is payable by recipient under IGST Act, 2017 on Reverse charge basis under GST
In addition to cited (Table -2) services, the following two additional services has been notified by the Central Government vide Notification No. 10/2017-Integrated Tax(Rate) Dated 28-06-2017 wherein whole of the tax shall be payable by the recipient on services under Section 5(3) of IGST Act,2017 on Reverse charge basis.
Table – 3
| Si. No. | Category of Supply of Services | Supplier of Service | Recipient of service |
| (1) | (2) | (3) | (4) |
| 1 | Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient. | Any person located in a non-taxable territory. | Any person located in the taxable territory other than non-taxable online recipient. |
| 10 | Services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the Customs Station of clearance in India. | A person located in a non-taxable territory. | Importer, as defined in Sec 2(26) of the Customs Act,1962, located in the taxable territory |
6. Would I be liable to pay GST on reverse charge even if the foreign supplier of software from whom I buy for use in my firm registered under GST was to accept the payment in Indian Rupees?
Yes, you would be liable to pay GST. A supply is treated as an import of service if the following conditions are satisfied:
(1) the supplier of service is located outside India;
(2) the recipient of service is located in India; and
(3) the place of supply of service is in India.
The place of such supply would be taken to be the location where the firm is registered (under GST) and the supplies would attract integrated tax (IGST). The factum of which currency was used to pay the consideration is immaterial.
7. As a composition dealer, do I have to issue a self-invoice if I purchase goods from an unregistered person?
Yes, a composition dealer will issue a self-invoice as he is required to pay GST. However, he will not be eligible for ITC.
Disclaimer: The Purposes of the article is knowledge sharing while the information is believed to be accurate to the best of my knowledge and belief. I do not make any representation or warranties, express or implied, as to the accuracy or completeness of this information. I accept no responsibilities for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies upon it.
Author Bio
We are a registered supplier of housekeeping staff. The service receiver company suddenly cut the GST amount and paid us the balance bill amount saying that they will pay the GST directly as per RCM. But we raise the bill as Tax Invoice and charge GST as usual. Now what to do?