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Reverse Charge Under GST

Reverse Charge is a type of mechanism wherein the recipient has to pay the tax liability for the goods purchased or services rendered instead of the supplier.

What is the RCM (Reverse Charge Mechanism)?

Generally, the taxpayer who supplies goods or/and services is required to pay the tax on the supply made. However, in the case of reverse charge, the person who receives the goods or renders the services is liable to pay the tax in place of the supplier. In simple words, under RCM (Reverse Charge Mechanism) the charge-ability of tax gets reversed.

Applicability of Reverse Charge

There are different case scenarios where RCM (Reverse Charge Mechanism) is applicable under GST. Let us understand these scenarios one by one:

i). When an unregistered dealer supplies goods or/and services to the Registered dealer

In a case where the supply is made by the unregistered dealer to the registered one then in such case, Reverse Charge Mechanism will be applicable under GST. In other words, the registered dealer will have to pay the tax to the GST Authorities instead of the unregistered dealer.

It shall be noted that any taxpayer who needs to pay the tax under the Reverse Charge Mechanism has to do *self-invoicing for the purchase made.

In inter-state supply, the registered dealer needs to pay the IGST whereas in the case of intra-state supply the registered dealer needs to pay CGST and SGST or UTGST.

*Self-invoicing is a situation where the registered taxpayer needs to generate the invoice for the purchase made from the unregistered taxpayer.

ii) Services rendered by an e-Com Operator

In case when a person receives services from the e-commerce operator then in such case the e-com operator will be liable to pay GST to the authorities. In other words, the reverse charge mechanism will apply to the e-commerce operator.

Let us understand this with an example, if you take any doorstep services from the e-commerce operator such as Urban Company then in such case the Urban Company (formerly known as Urban Clap) will be liable to pay GST instead of the registered service provider.

In case if the e-com operator does have any registered office in the taxable territory then in such case the person representing such e-commerce company will be liable to pay GST.

iii. Supply of goods or/and services specified by the CBEC

There is a list of product that is listed by the CBEC on which the Reverse Charge Mechanism (RCM) will be applicable.

Time of Supply under Reverse Charge

i) In the case of Goods

In the Reverse Charge Mechanism, the time of supply of the goods can be determined in the following way:

(a) the date on which goods are received; or

(b) the date on which the payment is made; or

(c) Immediately after 30 days from the date on which the invoice is issued by the supplier

-Whichever is earlier

Let us understand this with an example:

(a) Date of receipt of goods 1st December 2019

(b) Date of payment 1st January 2020

(c) The date of issue of invoice 31st October 2019 (hence, the date Immediately after 30 days from the invoice date will be 30th November 2019).

(d) Date of entry in books of accounts 10th February 2020.

The time of supply of goods, in this case, will be 30th November 2019.

ii) In the case of Services

In the case of reverse charge, the time of supply of service can be determined by the following way:

(a) the date on which the payment is made; or

(b) the date Immediately after 60 days from the date on which the invoice is issued by the supplier

-Whichever is earlier

Let us understand this with an example

(a) Date of payment 1st December 2019

(b) The date of issue of invoice 1st October 2019 (hence, the date Immediately after 60 days from the invoice date will be 31st November 2019).

(c) Date of entry in the books of accounts 1st January 2020.

The time of supply of services, in this case, will be 31st November 2019.