Reverse Charge Mechanism on Goods and Services under GST Updated – Article till 01.01.2018

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

There are two type of reverse charge scenarios provided in law. First is dependent on the nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST/SGST (UTGST) Act and section 5 (3) of the IGST Act. Second scenario is covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered.

As per the provisions of section 9(3) of CGST / SGST (UTGST) Act, 2017 / section 5(3)of IGST Act, 2017, the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both 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.

Similarly, section 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017 provides that 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. Accordingly, wherever a registered person procures supplies from an unregistered supplier, he need to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted. ( Notification 8/2017-Central Tax (Rate) dated 28.06.2017). However, vide notification no.38/2017-Central Tax (Rate) dated 13.10.2017, (corresponding IGST notification no.32/2017-Integrated Tax (Rate) dated 13.10.2017) all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017, till 31.03.2018. This exemption is available only till 31.03.2018.

The provisions of section 9(4) of the CGST Act, 2017, will not be applicable to supplies made to a TDS deductor in terms of notification no.9/2017-Central Tax (Rate) dated 28.06.2017. Thus, Government entities who are TDS Deductors under Section 51 of CGST Act, 2015, need not pay GST under reverse charge in case of procurements from unregistered suppliers.

Registration: A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category states except J & K) is not applicable to them.

ITC:

A supplier cannot take ITC of GST paid on goods or services used to make supplies on which recipient is liable to pay tax.

Time of Supply

The Time of supply is the point when the supply is liable to GST. One of the factor relevant for determining time of supply is the person who is liable to pay tax. In reverse charge, recipient is liable to pay GST. Thus time of supply for supplies under reverse charge is different from the supplies which are under forward charge.

In case of supply of goods, time of supply is earliest of –

a) date of receipt of goods; or

b) date of payment as per books of account or date of deb­it in bank account, whichever is earlier; or

c) the date immediately following thirty days from the date of issue of invoice or similar other document.

In case of supply of services, time of supply is earliest of –

a) date of payment as per books of account or date of deb­it in bank account, whichever is earlier; or

b) the date immediately following sixty days from the date of issue of invoice or similar other document.

Where it is not possible to determine time of supply using above methods, time of supply would be date of entry in the books of account of the recipient.

Compliances in respect of supplies under reverse charge mechanism:

1. As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.

2. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge

3. Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.

4. Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.

5. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis.

Supplies of goods under reverse charge mechanism:

S/
No.
Description of
supply of Goods
Supplier of
goods
Recipient of Goods
1 Cashew nuts, not shelled or peeled Agriculturist Any regis-tered person
2 Bidi wrapper leaves (tendu) Agriculturist Any regis-tered person
3 Tobacco leaves Agriculturist Any regis-tered person
4 Silk yarn Any person who manufac- tures silk yarn from raw silk or silk worm cocoons for
supply of silk yarn
Any regis-tered person
 4A Raw cotton Agriculturist Any regis- tered person.
5 Supply of lottery State Govern- ment, Union Territory or any local au­thority Lottery dis-tributor or
selling agent
6 Used vehicles, seized and confis-cated goods, old and   used    goods,
waste and scrap
Central Gov- rnment, State Government, Union
territory or a local authority
Any regis-tered person

Supplies of services under reverse charge mechanism:

 S/ No.  Description of supply of Service  Supplier of service  Recipient of service
 1 Any service supplied by any person who is located in a non-taxable territory to any person other than nontaxable online recipient. Any person located in a non-taxable territory Any person located in the taxable territory other than nontaxable online recipient.
 2 GTA Services Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12% Any factory, society, cooperative society, registered person, body corporate, partnership firm, casual taxable person;

located in the taxable territory Reverse Charge Mechanism in GST

 3 Legal Services by advocate An individual advocate including a senior advocate or firm of advocates Any business entity located in the taxable territory
 4 Services supplied by an arbitral tribunal to a business entity An arbitral  tribunal Any business entity located in the taxable territory
 5 Services provided by way of sponsorship to any body corporate or partnership firm  Any person Any body corporate or partnership firm located in the taxable territory
 6 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, –

(1) renting of immovable property, and

(2) services specified below-

(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, 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
 7

 

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 The company or a body corporate located in the taxable territory
 8

 

Services supplied by an insurance agent to any person carrying on insurance business An insurance agent Any person carrying on insurance business, located in the taxable territory
 9

 

Services supplied by a recovery agent to a banking company or a financial institution or a non-banking  financial company  A recovery agent A banking company or a financial institution or a non-banking financial company, located in the taxable territory
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 non-taxable territory Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory
11 Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1) (a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like

 

Author or music composer, photograph her, artist, or the like

 

Publisher, music company, producer or the like, located in the taxable territory Reverse Charge Mechanism in GST

 

 

12 Supply of services by the members of Overseeing Committee to Reserve Bank of India Members of Overseeing Committee constituted by the Reserve Bank of India

Reserve Bank of India.

(Republished with Amendment as on 01.01.2018 – Source- CBEC)

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26 responses to “Reverse Charge Mechanism on Goods and Services under GST”

  1. Md Imteyaz Alam says:

    In nutshell its very fruitful…..

  2. B D BABU says:

    we have paid RCM on some transactions after the notification of rcm is not paid. Can we avail the same as input credit. please reply

  3. geetha says:

    Sir,

    Director’s remuneration – GST applicable or not

    • Chandra sekhar. K says:

      Madam,
      GST on Director’s remuneration is payable under RCM as per the notification issued in terms of provisions of Section 9(3) of CGST Act, 2017. There is no exemption available to such RCM payment from 13.10.2017 to 31.03.2018. The exemption from payment of GST under RCM under Section 9(4) of CGST Act, 2017 is not applicable to Director’s remuneration.

  4. Ravi Chandiran says:

    You have mentioned in the article that all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017, till 31.03.2018.

    My question is whether we have to pay GST under RCM basis for the transactions for the period from April ‘2017 to 13.10.2017, covering under the above act.

    KIndly confirm and thanks in advance.

    • Chandra sekhar. K says:

      The RCM provision under Section 9(4) of CGST Act, 2017 came into operation from 01.07.2017 and kept in abeyance from 13.10.2017 to 31.03.2018. Hence, if a Registered person procured taxable goods or taxable services or both from an un-registered person during the period from 01.07.2017 to 13.10.2017, he is liable to pay GST under RCM. The period is 01.07.2017 to 13.10.2017 and not from 01.04.2017 to 13.10.2017 as mentioned by you.

  5. vishnu says:

    What is the case if RCM has not been paid in the period before 13/10/2017 that is before notification no.38/2017-Central Tax (Rate) dated 13.10.2017.

    • Chandra sekhar. K says:

      Dear Sir,
      It has to be paid along with interest now. Please note that there is exemption from such payment if the value of procurement of services or goods per day is not exeeding Rs.5000/-

  6. Adv. Sumit S. Dugad says:

    kindly read Notification No. 43/2017-Central Tax (Rate) :-
    In the said notification, in the TABLE, –
    (i) after Sl. No. 4 and the entries relating thereto, the following serial number and the entries
    shall be inserted, namely: –
    “4A. 5201 Raw cotton Agriculturist Any registered person”.
    2. This notification shall come into force with effect from the 15th day of November, 2017.
    What about this notification. It is clearly mention in the above notification that RCM will be levied on Raw cotton purchase from 15.11.2017.

  7. Dolly says:

    I want to know that payment nade per unregistered person uupto 5000 per day is not chargeable to GST itis correct or not

  8. devjav21 says:

    Dear Sir

    I am providing forensic services to my clients which include financial institutions, government bodies and also individuals. I am registered under GST. When I am raising an invoice on an individual then whether I have to charge them GST or not or mention the GST amount separately in the bill or not. Also most of these individual clients pay me cash how does one account these entries

  9. K.S.SHAH says:

    GOVERNMENT CIVIL WORK CONTRACTOR CATEGORY ??
    HOW MUTCH RATE OF GST APPLICABLE ON WORK BILL AMOUNT ?
    DIFFERENT TYPE OF LABOUR PAYMENT PAID IS LIABLE IN RCM ? WHICH PERCENT LIABLE ?OR NOT?
    WHICH NUMBER OF RETURN FILLED ?
    PL.HELP ME AND GIVE THE ANSWER

  10. Chandarakant Parmar says:

    Tax payment is bill wise or code wise once in a month under RCM.

  11. ASHWINI KUMAR SHARMA says:

    Dear Sir,
    I provide 2 types of services. (i) As a Company Director, where the RCM applies and the concerned Company pays ST/GST as per RCM, and (ii) as a Management Consultant to other Service Receivers, where I pay ST/GST and recover it from my Service Receivers.
    Now, under GSTR-1, the total turnover for FY 2016-17 and Quarter April-June 2017 has to be mandatorily provided. My query is whether this turnover is the one where Service Tax has been paid by me on recovery from Service Receivers (scenario ii) or turnover from services provided under RCM (scenario i) should also be included in the turnover from scenario (ii) for showing total turnover under GSTR-1 ?

  12. Deepak Dang says:

    In the very Ist year compliance should not coupled with any penal provision or intt. After transition period & smooth transformation law may work exactly as per mandate of Parliament. Today, Many CAs are not clear. Payment system of different businesses is different.
    – Payments are recd. from 3 -6 Months. How bills are to be raised & how GST can be recovered & credited in Govt. Account without recovery.
    – If payment is declared bad debt at a later stage then how the GST, paid in advance, will be refunded.
    – Another method is raising a proforma bill & actual billing will be on actual receipt basis.
    CLARIFY……..

  13. J V G ACCOUNTS&TAX CONSULTANCY says:

    of course the article is a comprehensive and well abridged piece. But the author perhaps forgotten to mention in Table no 1 goods supplied attracting RCM in sl no 6 it should have mentioned Any goods supplied by the unregistered to registered

  14. Rakesh says:

    how to make self invoice in case of RCM?
    If anyone have please share…

  15. Anjali E says:

    Thanks taxguru…good site..

  16. Satya says:

    after payment of RCM, how to avail ITC on such challan/invoice in GST?
    means entry in electronic ledger or automatic entry will come?

  17. SANDEEP SHIV DUTT & ASSOCIATES says:

    Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger.

    Where above restriction is provided under the Act and Rules

  18. M.Natarajan says:

    In GSTR 1,details of RCM has to be filled in Table 4B. Table 4B asks for name of the supplier and suppliers GSTN. Supplier GSTN is mandatory field. How will the RCM for purchases from unregistered details be reported in this table.

    • CMA Girish GR says:

      GSTR-1 Seeks information about outward supplies and not inward supplies. please clarify if liability on RCM has to be declared in GSTR1 or GSTR2

  19. Rajaram Shetty says:

    Nice article on RCM comprehensive coverage

  20. indar kumar says:

    Sir,
    what will be scenario if the transporter is not a GTA, in the sense, we hire a local tempo owned by individual and pay him without any consignment note

  21. gst says:

    tax guru i am really thankful to you for providing this important information about reverse charge mechanism. know i want to know about GST in brief. how to file return in gst procedure etc.

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