Reverse Charge Mechanism in GST

Reverse Charge Mechanism in GST

Reverse Charge Mechanism in GST Meaning, Types, Sections, Registration, Time of Supply, Compliances, List of Supplies of goods

What is Reverse Charge Mechanism in GST?

Reverse Charge Mechanism in GST: 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.

Reverse Charge Mechanism
Reverse Charge Mechanism in GST

Types of Reverse Charge Mechanism in GST

Reverse Charge Mechanism in GST is two types 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.

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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: (Reverse Charge Mechanism in GST)

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

Time of Supply: (Reverse Charge Mechanism in GST)

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.

Reverse Charge Mechanism in GST
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 another document.

Reverse Charge Mechanism in GST
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 another 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 in GST:

  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 mechanism in GST. 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 mechanism in GST.
  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.

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  1. Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in table 4B of GSTR-1.
  2. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge mechanism in GST basis.

Supplies of goods under reverse charge mechanism in GST:

S/ No.Description of supply of GoodsSupplier of goodsRecipient of Goods
1Cashew nuts, not shelled or peeledAgriculturistAny registered person
2Bidi wrapper leaves (tendu)AgriculturistAny registered person
3Tobacco leavesAgriculturistAny registered person
4Silk yarnAny person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarnAny registered person
4ARaw cottonAgriculturistAny registered person.
5Supply of lotteryState Government, Union Territory or any local authorityLottery distributor or selling agent
6Used vehicles, seized and confiscated goods, old and used goods, waste and scrapCentral Government, State Government, Union territory or a local authorityAny registered person
   

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Supplies of services under reverse charge mechanism in GST:

S/ No.Description of supply of ServiceSupplier of serviceRecipient of service
1Any service supplied by any person who is located in a non-taxable territory to any person other than non- taxable online recipient.Any person located in a non-taxable territoryAny person located in the taxable territory other than non- taxable online recipient.
2GTA ServicesGoods Transport Agency (GTA) who has not paid integrated tax at the rate of 12%Any factory, society, co- operative society, registered person, body corporate, partnership firm, casual taxable person; located in the taxable territory
3Legal Services by advocateAn individual advocate including a senior advocate or firm of advocatesAny business entity located in the taxable territory
4Services supplied by an arbitral tribunal to a business entityAn arbitral tribunalAny business entity located in the taxable territory
5Services provided by way of sponsorship to anybody corporate or partnership  firmAny personAnybody corporate or partnership firm located in the taxable territory
6Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, – renting of immovable property, andservices specified below-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; Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; transport of goods or passengers.Central Government, State Government, Union territory or local authorityAny business entity located in the taxable territory
7Services supplied by a director of a company or a body corporate to the said company or the body corporateA director of a company or a body corporateThe company or a body corporate located in the taxable territory
8Services supplied by an insurance agent to any person carrying on insurance businessAn insurance agentAny person carrying on insurance business, located in the taxable territory
9Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial companyA recovery agentA banking company or a financial institution or a non-banking financial company, located in the taxable territory
10Services 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 IndiaA person located in non-taxable territoryImporter, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory
11Supply 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 likeAuthor or music composer, Photograph her, artist, or the likePublisher, music, company, producer or the like, located in the taxable territory
12Supply of services by the members of Overseeing Committee to Reserve Bank of IndiaMembers of Overseeing Committee constituted by the Reserve Bank of IndiaReserve Bank of India.

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