Hello everyone coming with another article in this New Year on Reverse Charge under GST, Reverse charge under GST is a mechanism where recipient of goods and/ or services is liable to pay GST instead of supplier.

What is Reverse Charge under GST?

Under Normal Scenario, tax is paid by a supplier who makes supply of goods or services or both. However, under Reverse Charge Mechanism, liability to pay tax would not be on the supplier of goods or services or both but on the recipient of such goods or services or both.

What are the topics we discuss in this article

1) Purpose of Reverse Charge Mechanism under GST

2) When is Reverse charge applicable under GST

3) List of Services notified by CBEC on which Reverse Charge Mechanism under GST is applicable

4) Time of Supply under GST Reverse Charge Mechanism

5) GST registration under Reverse Charge Mechanism

6) Input tax Credit under GST Reverse Charge Mechanism

7) Invoicing Rules under GST Reverse Charge Mechanism

1) Purpose of Reverse Charge Mechanism under GST

The purpose of reverse charge is to increase tax compliance and tax revenues. Earlier, the government was unable to collect service tax from various unorganized sectors like goods, transport etc. Compliances and tax collections will be increased through this mechanism.

2) When is Reverse charge Applicable

Supply from an unregistered dealer to registered dealer

If a vendor who is not registered supply goods to a person who is registered then Reverse charge would apply. This means GST is paid directly by receiver to government instead of supplier.

For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the purchaser.

Caution:-Latest update as per 22nd GST Council Meeting held on 6th Oct 2017

Reverse charge is deferred till 31.03.2018.

  • Services through an E- Commerce operator

If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.

For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.

If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

3) List of Services notified by CBEC on which Reverse Charge Mechanism under GST is applicable

CBEC has notified a list of 12 services on which tax shall be paid by the recipient on 100% reverse charge basis:

  • Non-resident service provider
  • Goods Transport Agencies
  • Legal service by an Advocate/ Firm of Advocates
  • Arbitral Tribunal
  • Sponsorship Services
  • Specified Services provided by Government or Local Authority to Business entity
  • Services of a director to a company
  • Insurance agent
  • Recovery Agent of Bank/FI/ NBFC
  • Transportation Services on Import
  • Permitting use of Copyright
  • Radio Taxi services to E-commerce aggregator (eg: Ola, Uber, etc.)

4) Time of Supply under Reverse Charge

Ø Time Of Supply in case of Goods

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • the date of receipt of goods
  • the date of payment*
  • the date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

Ø Time Of Supply in case of Services

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

5) GST registration under Reverse Charge Mechanism

All taxpayer required to pay tax under RCM have to register for GST and threshold limit for 20 lakhs is not applicable to them.

6) Input tax Credit under GST Reverse Charge Mechanism

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 input tax credit.

7) Invoicing Rules under GST Reverse Charge Mechanism

Self-invoicing is to be done when you have purchased from an unregistered supplier AND such purchase of goods or services falls under reverse charge.

This is due to the fact that your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.

In case you are confused about GST as a business owner, feel free to consult me at eshaag6@gmail.com

KEEP ON SMILING!!!!!!!!

Thanks for reading!!!!!!!!

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