Mr. A:- Good Day Sir, how are you?

CA:- Hi Mr. A, I am doing fine, how about you?

Mr. A:- Doing good, Sir I have heard that in GST if we deal with unregistered dealer then we have to pay tax on behalf of them?

CA:- Hi Mr. A, Be Calm. Yes, what you are saying is true. This concept is called “Reverse Charge”. Previously it had a very little scope in Service Tax but in GST it has very wider scope and if a registered person deals with unregistered supplier then the registered person has to raise the invoice and pay the tax on it. I understand this is huge compliance burden but this is what the current design in GST.

For example, If a registered purchases stationery from an unregistered person, then such registered person has to pay tax on such transaction under reverse charge mechanism.

Mr. A:- Oh, so that tax is additional burden on the registered person?

CA:- From compliance point of view it is really an additional task but the registered person can claim the tax paid as input tax credit in the subsequent month. So from cost point of view, registered person will not be affected.

Mr A:- Ok, so what will be the time of supply considered under reverse charge transactions?

CA:- Good Question. The time of supply of goods under reverse charge will be earlier of the following:

i) Date of receipt of goods or

ii) Date on which payment is made

iii) Date after 30 days from the date of issue of invoice or document by the supplier

For example, If a registered person is purchasing stationery from an unregistered person on 2nd October and the supplier is providing bill on 10th October and the amount was paid to supplier on 25th October. Then in this case the time of supply will be considered is on 2nd October being date of receipt of goods.

And time of supply in case of services under reverse charge will be earlier of the below:

i) The date on which payment is made

ii) Date after 60 days from the date of issue of invoice or document by the supplier

Mr A:- Ok, so seriously these provisions are going to make transactions with unregistered persons a thing of past?

CA:- Yes Mr A. Purchase from unregistered person can prove costly and will also increase compliance burden as every time registered person has to take care of such transaction. Definitely people will deal more with registered players in GST regime and hence the number of registered persons will increase under GST. But this will really affect drastically a large number of small traders or service providers.

(MJL & Co, Jaipur, Chartered Accountants, Email- MJLco.Jaipur@gmail.com, Phone No. – 0141-4915113)

Author Bio

Qualification: CA in Practice
Company: M J L & Co
Location: Jaipur, Rajasthan, IN
Member Since: 24 Jun 2017 | Total Posts: 11
M J L & CO is a chartered accountancy firm registered with Institute of Chartered Accountants of India (ICAI) having its head office at Jaipur. We are the team of young and energetic partners having positive attitude to provide expert and professional services with due care of professional ethic View Full Profile

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6 responses to “Goods & Services Tax: Reverse Charge”

  1. Rahul Bardia says:

    Pl inform when a registered dealer procures services like job work or security services then whether RCM will be applicable?

    GTA is covered but whether other services are also covered?

    • mjlcojaipur says:

      Hi Rahul,

      Yes RCM is applicable in case where registered person receive any services from unregistered person.

      In case of GTA and other specified services, reverse charge is applicable irrespective of the fact whether services are received from registered person or unregistered person.

  2. OM PRAKASH says:

    Dear Sir,
    If a unregistered person deal with inregistered dealer then what was the impact of reverse charge. for example i was a unregistered person purchasing astationary from unregeristered dealer in that condition what i do for reverse charge.

    • mjlcojaipur says:

      Reverse charge is not applicale if unregistered person is dealing with another unregistered person.

  3. Rajesh Modi says:

    Sir,
    If unregistered person due to trade in tax free goods taken services under reverse charge would he liable for reverse charge under GST. And whether he can claim reserve charge set off.

    • mjlcojaipur says:

      Hi Rajesh,
      Can you please elobrate your question or provide an example?
      This will help us to understand your query better.

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