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E-Invoicing For Reverse Charge Transactions

E-Invoicing was introduced in batches from 1 October 2020. Under the new invoicing system, the responsibility of invoice creation and registration of the same with the Invoice Registration Portal (IRP) is that of the Supplier. In other words, the Supplier who collects GST from the recipient/buyer has to generate the IRN and add the Dynamic Quick Response (QR) code to the final invoice that is shared with the recipient/buyer.

However, there are a few atypical situations in which transactions may have to be reported under the Reverse Charge Mechanism (RCM). Here the recipient has to generate the invoice and register it in on the GST portal.

Transactions Covered Under Reverse Charge Mechanism

  • The supply of notified goods or services like sale of raw cotton, tobacco leaves, silk yarn, etc. or services provided by insurance agents, Goods Transport Agency (GTA), etc., are covered under the Reverse Charge Mechanism (RCM).
  • If a GST registered person avails services or buys goods from an unregistered dealer, such GST registered person will be liable to pay GST under RCM (for notified goods/services only).
  • Services received through an e-commerce operator are covered under RCM. In other words, E-commerce operators who provide a platform to buyers and sellers are liable to pay GST on behalf of their Suppliers.

E-Invoicing And Reverse Charge Mechanism

As per the new invoicing rules, RCM transactions fall within the ambit of e-Invoicing. However, there are a few exemptions. Here is the list of RCM transactions for which e-Invoicing is applicable:

  • Sale of goods or supply of services notified for Reverse Charge Mechanism (RCM) under section 9(3) of CGST Act, 2017. Here, the Supplier of goods/services has to register the invoice with the IRP.
  • Services through an e-commerce operator. Here, the E-commerce operator has to generate the IRN.

Note:

These provisions will be applicable only if:

  • The taxpayer making such sales should be covered under e-Invoicing (total aggregate turnover in any financial year since 2017-18, should be more than INR 100 crores).
  • The sale should be a B2B transaction.

IRP Validations For RCM transactions

When a Supplier or e-commerce operator reports RCM transactions to the IRP, they should validate whether serial number 1.7, ‘Reverse_Charge’ is set as ‘Y’.

IRP Validations For RCM Transactions

RCM Transactions Exempted From E-Invoicing

As mentioned above, when a GST registered person receives taxable supplies from an unregistered person, u/s 9(4) of CGST Act, 2017, such registered person has to pay GST on a reverse charge basis. However, this transaction is not covered under e-Invoicing.

Furthermore, in this case, the GST registered person will have to generate a self invoice. This is mainly because the Supplier cannot provide a GST-compliant invoice, and GST has to be paid on their behalf.

A self-generated invoice should include these basic details:

  • Name and address of the Supplier,
  • Unique invoice number,
  • Date of issue,
  • GSTIN number of the GST registered person along with their name and address,
  • HSN/SAC code and description of goods/services purchased,
  • Quantity of goods or the unique quantity code,
  • Total value of the goods/services,
  • Taxable value of the goods/services,
  • Bifurcated rate of tax with the amount of tax,
  • Place of supply.

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