Analysis of Reverse Charge Mechanism Under GST

Prakash Matre
Prakash Matre at March 22, 2023

Table of Contents

Automate your GST Compliances with Masters India

Request Callback

Reverse Charge Mechanism

Baburam, the owner of a goods transportation agency, hurried inside the office of Kushal, a CA by profession, whov looked after Baburam’s files.

“Baburam ji!” Kushal greeted, “Long time. How are you doing?”

“I ain’t doing any fine,” Baburam retorted as he sat down, “For truck owners and transporters like us, GST has hit us like a speeding truck!”

“Well, GST has indeed hit the country,” Kushal smiled, “But of all the people, I thought you’d be happy with the “truck” known as GST!”

“Why would we be happy? The companies are asking for our GST registration! There’s a lot of confusion. Some say, we don’t need to apply, others are jabbering about Ridiculous Charge Mechanism!”

“Ha, ha, ha!” Kushal laughed, “It’s not Ridiculous but Reverse Charge Mechanism!”

“Whatever,” Baburam said, “everything looks ridiculous nowadays!”

“Well, speaking of your business, Baburam ji, you have a Goods Transportation Agency,” Kushal explained, “And in your case, you are generally exempted under the umbrella of GST.”

“How come?” Baburam was eager to know.

Kushal explained:

“Normally a service provider is required to pay taxes, but in case GTA provides the services to the following persons, recipient of services is required to pay GST under reverse charge:-

  1. any factory registered under or governed by the Factories Act,1948;
  2. any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India;
  3. any co-operative society established by or under any law;
  4. any person registered under CGST/SGST/UTGST Act;
  5. any body corporate established by or under any law; or
  6. any partnership firm whether registered or not under any law including association of persons;
  7. casual taxable person.”

“That sounds good,” Baburam said, “You mean to say that if I am transporting cement bags of a cement company from one place to another and I am charging Rs 25000.00 freight from them, then I don’t have to do anything about GST?”

“Exactly, “Kushal said, “In such a case the company will pay you Rs 25000.00 and the company will also pay the GST @ 5 % on Rs 25000.00. The company will be able to take the credit of such tax paid.”

“Hmmm…okay. But even if we are exempt, do we have to apply for GST registration?” Baburam asked.

“No.” Kushal said, “As per a recent notification by the Government, GTA are not required to obtain registration under GST. Furthermore, following services provided by a goods transport agency, by way of transport in a goods carriage are exempted:

  • agricultural produce;
  • goods where consideration charged for transportation of goods on a consginment does not exceed Rs 1500
  • goods where consideration charged for transportation of all such goods for a single consignee does not exceed Rs 750
  • milk, salt and food grain including flour, pulses and rice;
  • organic manure;
  • newspaper or magazines registered with the Registrar of Newspapers;
  • relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or
  • defense or military equipment

“That’s very good.” Baburam nodded.

“But there are some rare cases which require GTA to take GST registration.” Kushal said.

“Oh…please explain,”

If the GTA provides service other than exempted services or services liable to reverse charge, in such a case, the GTA needs to take registration."

 “Yeah, we generally provide our service to big corporations and firms and so no GST for us.” Baburam observed and said, “Furthermore, on rare occasions, we provide GTA service to unregistered small parties. But per consignment value is always less than Rs 1500. And so we don’t need to have GST registration such case either.

“Right you are!” Kushal said and continued "GTA has the option of either paying tax under forward charge @ 12% (CGST +SGST) or letting the recipient pay the tax @ 5% (CGST + SGST). However, no ITC will be available to the GTA if the recipient is bearing the burden of GST under reverse charge."

“Thank you so much for all the clarifications!” Babruram said as he stood up.

“You are always welcome!”

How useful was this post?
Click on a star to rate it!
Average rating 4.48 / 5. Vote count: 168
GST Software
Best GST Software for Return Filing & Billing in India

Check out other Similar Posts

No Data found
No Blogs to show
Need Help in Getting Started?
Make smart decision to replace your manual work with modern solution and improve your business output
Request Callback
Continue Browsing
Subscribe Now!
Receive GST, E way bill, e-Invoice, Accounts payable and OCR updates from our experts.