What goods and service are covered on reverse charge basis?

1. Registered Person procuring goods/service from unregistered Supplier.

When an unregistered supplier (say trader having turnover of less than 20 lakhs) supplies goods to registered person than CGST/IGST will be payable by the recipient (i.e. registered person) – Section 9(4) of CGST & Section 5(4) of IGST Act.

If you are a registered person than your cost of compliance is expected to increase a lot as this will cover cases such as repaid services from a small contactor, small value supplies like tea from tea vendor, Stationary etc. However if this expenditures have a cap of Rs. 5000 a day before they are covered in reverse charge as per Notification 8/2017-Central Tax (Rate).

You might wonder what if registered person is under Composite Scheme.

This would make no difference and hence wen a registered person under composite scheme procures goods from unregistered person that also reverse charge will apply and CGST/IGST liability to be discharged by such registered person.

2. Import of Service

(As per decision of GST Council on 19-05-2017)

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Person located in Non- Taxable Territory Any person located in taxable territory but excludes non-assesse online recipient.

Who is Non-assesse:

 Persons or business entity such as

(a) merchant exporter,

(b) co-noticee,

(c) refund applicant,

(d) persons liable to pay penalties for late CE/ST registration and against whom the departmental authorities have initiated proceedings or issued a penalty order and

(e) persons e.g. STPI, EOUs who are required to tender any payment under CE/ST Act /Rules are Non-assessee.

3. Goods Transport Agency Service

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Goods Transport Agency a) Person registered under CGST/SGST/UGST Act Even unregistered person covered in following cases, making it compulsory for them to obtain registration- Section 24 of CGST Act. 

b)  Factory (Incorporated in Factories Act, 1948)

c) Society (Incorporated in any law for time being in force)

d) Co-operative Societies (Incorporated in any law for time being in force)

e) Body Corporate

f)  Partnership firm(registered or not)

g) Casual Taxable Person

4. Services of advocates & Firm of Advocates

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Individual Advocate or Firm of Advocate Any Business Entity

 5. Services of Arbitral Tribunal

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Arbitral Tribunal Any Business Entity

 6. Sponsorship Services

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Any Person a)      Body Corporate

b)     Partnership firm

7. Services by Government or Local Authority (Except renting of immovable property, Post, Services relating to aircraft or vessel in port & transport of goods & passengers)

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
a)      Government

b)     Local Authority

Any Business Entity

 8. Service of Directors to Body Corporate

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
a)      Director of a Company

b)     Body Corporate

A Company or a Body Corporate

Note: Service of employee to employer in the course of or in relation to his employment is outside the preview of GST. So remuneration to directors who have employer employee relation with company may are not covered here.  

9. Service of Insurance Agent

(As per decision of GST Council on 19-05-2017)

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Insurance Agent Person carrying out insurance business

10. Service of Recovery Agent

(As per decision of GST Council on 19-05-2017) 

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Recovery Agent a)      Banking Company

b)     Financial Institution

c)      Non-Banking Financial Company

11. Ocean Freight from ou of India up to customs station in India

(As per decision of GST Council on 19-05-2017)

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Person in Non-Taxable Territory Importer as defined in Section 26(2) of the custom Act, 1962

12. Ocean Freight from out of India up to customs station in India

(As per decision of GST Council on 19-05-2017)

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
Person in Non-Taxable Territory Importer as defined in Section 26(2) of the custom Act, 1962

13. Royalty on Copyright services payable to authors, Music Composers, Photographer, artist etc

(As per decision of GST Council on 19-05-2017)

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
a)      Author

b)     Music Composer

c)      Photographer

d)     Artist

a)      Publisher

b)     Music Composer

c)      Producer

 

14. Radio Taxi or Passenger transport services through E-commerce

(As per decision of GST Council on 19-05-2017)

Provider of Service Recipient of Service (Person liable to discharge liability of GST payment under Reverse Charge basis)
a)      Taxi Driver

b)     Rent a cab operator

Any person in the business of electronic Commerce Operator

Tax under reverse charge to be paid in cash only

GST payable on reverse charge basis can be paid in cash only. i.e it cannot be paid by utilizing input tax credit. – Section 49(4) of CGST Act read with section 2(82) of CGST Act.

Input tax credit of GST paid on reverse charge basis:

As per Section 2(62)(b) and (d) of CGST Act Input tax credit can be availed for tax paid on reverse charge basis.

Input tax credit is eligible only when it is credited to electronic credit ledger of taxable person.

Compulsory Registration for person liable to pay on reverse Charge basis:

As per Section 24(iii) of CGST Act it is compulsory for person who is required to pay tax on reverse charge basis to obtain GST registration irrespective of the turnover or any other criteria.

Author can be reached on bhinang.tejani@gmail.com or whatsapp on 9898054244

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6 responses to “Reverse Charge in GST regime”

  1. SHARLIN says:

    1.A registered Hill Produce Dealer receives agricultural produce from agriculturists ; is RCM applicable ? ( Reason )
    2. A registered Gold merchant receives old gold from persons; Is RCM applicable ? ( Reason

    • bhinangt says:

      1. For agriculture produce check exemption list which covers “agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing”.
      And if exempted from GST than no registration required. Because when there is no LEVY there cannot be a liability to pay.

      2. When any old product is sold for a price higher than a price for which it is bought than difference amount will be the value for the purpose of GST (refer GST Valuation rules) and hence GST is payable on it… and when GST is payable it implies registration is required.

  2. sudhir bector says:

    Company is receiving rental services from an Unregistered person under GST.
    01.Whether the company is liable to pay under GST under RCM?
    02.If Yes, Whether a company is eligible to take credit of the Same.?
    03.Whether Unregistered landlord vendors need to raise invoice on us enabling us to take credit of GST paid under RCM..??
    Please Clarify…!!!

    • bhinangt says:

      01.Whether the company is liable to pay under GST under RCM?
      Ans: Company is liable to pay GST on RCM basis when a daily expenditure exceeding 5000 is made from UNREGISTERED DEALER.. (This includes all expenses like rent, stationary, payment to refreshments etc)

      02.If Yes, Whether a company is eligible to take credit of the Same.?
      Ans: Company can take ITC of this GST. Note that GST on RCM needs to be paid in cash and than credit can be taken for it… (In Other words you cannot utilize ITC for paying GST on reverse charge basis)

      03.Whether Unregistered landlord vendors need to raise invoice on us enabling us to take credit of GST paid under RCM..??
      Ans: No need to raise invoice, tax paid challan in cash is sufficient to take ITC for it

  3. Vinkesh Gulati says:

    In the case of education Society, is registration compulsory. The Society is not giving any taxable service. Will the society also have to deposit the tax as per RCM.

    • bhinangt says:

      registration for person liable to pay tax on RCM basis is governed by Section 24. And Section 24 starts with “NOTWITHSTANDING ANYTHING CONTAINED…..” this implies that all other facts are irrelevant and hence even a education society is liable for registration. Refer Section 24(iii) of CGST Act

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