In the current article we will discuss about services On Which Goods and Service Tax (GST) Is Payable Under reverse charge Mechanism (RCM) in different scenarios.

As per notifications given by government as on date there are various notified services on which GST has to be paid on reverse charge basis.

SERVICES ON WHICH GST TO BE PAID UNDER REVERSE CHARGE MECHANISM

1. Supply of services in relation to transportation of goods by road(GTA).

We must first understand Supply of GTA services, GTA has two options first is to “5% GST NO ITC” and second “12% GST WITH ITC”. GTA can charge 5% GST from the customers but he is not eligible to claim input tax credit for the input, input service and capital goods, however he has other option to charge 12% GST and claim input tax credit of input, input service and capital goods. There are certain items on which 0% rate of GST is levied so that essential items are not gets inflated so it can be said that for the essential or necessity items are at 0% rate of GST. Now it should be further subdivided under 2 categories:-

  • GTA Service to “Registered person”- GTA services given by the entity, if he has opted for 12% then there is normal charge of GST and GST has to be collected & submitted by the goods transport agency and there is also no reverse charge if GTA has opted for 12% with ITC. However if GTA has opted for 5% Without ITC then registered person or the notified person are liable to pay tax under reverse charge.
  • GTA Service to “Un-registered person”- If GTA services are being provided to unregistered person then there would be no GST as per exemption no 21A, exemption is available for services provided by a goods transport agency to an unregistered person including an unregistered casual taxable person.

2. Legal service by advocate.

As per the notification if legal services are provided by :-

  • Individual advocate
  • Firm of advocate
  • Senior advocate

Directly or indirectly to any business entity located in taxable territory then GST under reverse charge has to be paid by the business entity. Legal services means any services provided in relation to advice, consultancy or assistance in any branch of law in any manner and includes representation services before any court, tribunal or authority. However if legal services are being provided by advocates to other than business entity are covered are covered under the exemptions given by the government. Hence if services are provided to business entity then the business entity is liable to pay tax and in other than business entity exemption is given by the government,

3. Services by Arbitral tribunal

As per the notification in respect of services provided or agreed to be provided by “Arbitral tribunal” to any business entity in taxable territory then the GST on supply of service by arbitral tribunal would be paid on reverse charge basis by the business entity.

Arbitral tribunal is a private tribunal constituted by the parties mutually through an agreement for disposal of any kind of future disputes between the parties.

4. Services in relation to sponsorship service.

As per the above notification sponsorship service being provided by any person to any:-

  • Body corporate
  • Partnership firm

Located in taxable territory then tax has to be paid by the body corporate or the partnership firm under reverse charge. So it can be said that if sponsorship service is given to any individual then there would not be any reverse charge the supply of service would attract normal charge.

5. Services provided by Central /State/ union territory government or any local authority –

It should be further divided under three heads for better understanding:-

  • Renting of immovable property by Government– As per the notification if there is any government property that is being rented by Government or the local authority then services provided to any registered person under CGST Act then that registered person will have to pay GST on renting of immovable property on reverse charge basis. However if the immovable property is being rented to unregistered person then GST has to be paid by the government under normal charge. In other words renting of immovable property to registered person will always be paid on reverse charge basis in case of government property.
  • Services provided by government by the department of post by way of speed post, parcel, life insurance and services in relation to an “Aircraft” or a “Vessel” and transportation of goods or passenger– As per this provision for these services there is no reverse charge, hence normal charge is to be levied for these services. These services attracts normal charge means GST would be charged by the government agencies and will be paid by the agencies.
  • All the services except those already discussed above– As per the provision services supplied by central government, state government, union territory or local authority to business entity in taxable territory then the person liable to pay tax it the business entity under the reverse charge. Hence for the remaining services GST has to be paid by the business entity on reverse charge.

6. Services supplied by non executive directors

If a director of a company makes supply of services to the company or body corporate then GST is liable to be paid on reverse charge basis by the company or body corporate but in case of whole time director no GST is applicable as it is in the course of employment which is out of the scope of GST as per Para-I of Schedule-III.

7. Services supplied by “Insurance agent”

All the services provided by the Insurance agent to any person carrying insurance business then person liable to pay GST is that person who is carrying any insurance business located in taxable territory under reverse charge E.g. GIC and LIC.

8. Services supplied by “Recovery Agent”

All the services provided by the Recovery agent to:-

  • A banking company
  • A Financial institution
  • NBFC

Then the person liable to pay tax is banking company or financial institution or NBFC located in taxable territory.

9. Supply of service by way of use of “Copyright”

Supply of service by way of transfer or permitting use or enjoyment of a copyright covered under sec 13(1)(a) of copyright Act, 1957 relating to “Original literary”, “Dramatic”, “Musical” or Artistic works by

  • An Author
  • Music composer
  • Photographer
  • Any other artists

To a publisher, music company, producer or the like located in taxable territory then person liable to pay tax under reverse charge would be a Publisher, music company or producer located in taxable territory.

10. Any service supplied by any person from a “Non-taxable” territory”

This should be divided into 2 parts:-

  • Services supplied to “Non-taxable online recipient- If services are supplied to NTOR then there would be normal charge and GST has to be paid by the person supplying services from the non taxable territory. E.g. Netflix supplying services from USA to India to a unregistered person then GST would be paid by Netflix under normal charge.
  • Services supplied to other than non taxable online recipient- If services are supplied from non-taxable territory other than NTOR then there would be reverse charge and GST would be payable under reverse charge by the person receiving services.

“non-taxable online recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

Explanation.––For the purposes of this clause, the expression “governmental

authority” means an authority or a board or any other body,––

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with ninety per cent. or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution;

In case of any doubts in the current topic or for consultancy under provisions of Indirect taxation (GST and CUSTOMS) then you may contact us at abhutpurv@gmail.com

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