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Reverse Charge Mechanism in GST

Reverse Charge Mechanism under GST

It is always the case where the supplier of goods and services is liable to pay the GST. But, when it comes to Reverse Charge Mechanism, the receiver of goods and services has to pay the tax, meaning that the tax liability is reversed. Reverse Charge means the liability to pay tax while GST return filing 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.

According to the normal GST return filing procedure, the supplier sells goods/services to the receiver and the latter pays the former for the same. This payment also includes GST, which the supplier then pays to the government. But, in the case of the Reverse Charge Mechanism in GST, tax is paid by the receiver directly to the government; it does not go through the supplier and is not part of the exchange of goods/services.

When is a reverse charge applicable?

Several acts govern the reverse charge scenarios for intrastate transactions. Section 9(3), 9(4) and 9(5) of Central GST and State GST deal with it. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST Act govern the reverse charge scenarios for inter-state transactions. Let’s take a closer look at these scenarios.

Supplies of goods under reverse charge mechanism:

 

Description of

supply of Goods

Supplier Recipient
1 Cashew nuts, not

shelled or peeled

Agriculturist Any registered person
2 Bidi wrapper

leaves (tendu)

Agriculturist Any registered person
3 Tobacco leaves Agriculturist  Any registered person
4 Silk yarn Any person

who manufactures silk yarn

from raw silk

or silkworm

cocoons for

supply of silk

yarn

Any registered person
4A Raw cotton Agriculturist Any registered person.
5 Supply of lottery State Government, Union

Territory or

any local authority

Lottery distributor or

selling agent

6 Used vehicles,

seized and confiscated goods, old

and used goods,

waste and scrap

Central Government,

State Government, Union

territory or a

local authority

Any registered person

 

Supplies of services under reverse charge mechanism

  Description

of supply of

Service

Supplier Recipient
1 Any service

supplied by any

person who

is located in

a non-taxable

territory to any

person other

than nontaxable online

recipient.

Any person

located in a

non-taxable

Territory

Any person

located in

the taxable

territory other

than nontaxable online

Recipient.

2 GTA Services Goods

Transport

Agency (GTA)

who has not

paid integrated

tax at the rate

of 12%

Any factory,

society, cooperative

society,

registered

person, body

corporate,

partnership

firm, casual

taxable person;

located in

the taxable

territory

3 Legal Services

by advocate

An individual

advocate

including a

senior advocate

or firm of

advocates

Any business

entity located

in the taxable

territory

4 Services

supplied by an

arbitral tribunal

to a business

entity

An arbitral

tribunal

Any business

entity located

in the taxable

territory

5 Services

provided by way

of sponsorship

to anybody

corporate or

partnership

firm

Any person Anybody

corporate or

partnership

firm located

in the taxable

territory

6 Services

supplied by

the Central

Government,

State

Government,

Union territory

or local

authority to a

business entity

excluding, -(1) renting of

immovable

property, and

(2) services

specified below-

(i) 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;

(ii) services in

relation to an

aircraft or a

vessel, inside

or outside the

precincts of

a port or an

airport;

(iii) transport

of goods or

passengers.

Central

Government,

State

Government,

Union territory

or local

authority

Any business

entity located

in the taxable

territory

7 Services supplied by a director of a company or a body corporate to the said company or the body corporate A director of a

company or a

body corporate

The company

or a body

corporate

located in

the taxable

territory

8 Services

supplied by

an insurance

agent to any

person carrying

on insurance

business

An insurance

agent

Any person

carrying on

insurance

business,

With active GST return filing going on.

9 Services

supplied by a

recovery agent

to a banking

company or

a financial

institution or

a non-banking

financial

company

A recovery

agent

A banking

company or

a financial

institution or

a non-banking

financial

company,

located in

the taxable

territory

10 Services

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

India

A person

located in

non-taxable

Territory not liable to GST return filing

Importer, as

defined in

clause (26) of

section 2 of

the Customs

Act, 1962(52

of 1962),

located in

the taxable

territory

11 Supply 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

like

Author

or music

composer,

photograph

her, artist, or

the like

Publisher,

music

company,

producer

or the like,

located in

the taxable

territory

12 Supply of

services by the

members of

Overseeing

Committee to

Reserve Bank

of India

Members of

Overseeing

Committee

constituted by

the Reserve

Bank of India

Reserve Bank

of

India.

 

Time of supply under reverse charge mechanism (RCM)

The time of supply under GST means a particular point of time when the goods or services are supplied or provided. Using the time of supply, you can find the tax rate applicable on goods or services, the person liable to pay tax and due dates for paying GST and GST return filing. Under the reverse charge mechanism, the method to determine the time of supply is different for goods and services.

In the case of goods supplied under RCM, the time of supply will be the earliest of the following dates:

-Date of receipt of goods

-Date immediately after 30 days from the date of issue of an invoice by the supplier

In the case of services rendered under RCM, the time of supply will be the earliest of the following dates:

-Date of payment

-Date immediately after 60 days from the date of issue of invoice by the supplier

In case, the time of supply cannot be determined under the given conditions above, then the time of supply will be the date of entry in the books of account of the recipient.

RCM Provisions Under GST Return filing Forms – GSTR 1 – GSTR 2

In case the supplier is registered, but the goods or services come under a reverse charge mechanism, ITC cannot be claimed by the supplier as the tax is not credited by him but the receiver is paying the taxes. In the case of importers of goods, taxes need to be paid under a reverse charge mechanism to the Government on the import while GST return filing.

The details of the charges pertaining to the inward supply of goods or services are to be mentioned in the GST Return filing form 1. The details of inward supply are stated in GST Return filing form 2. Further, the person needs to get registered under GST irrespective of the turnover, if he/she is liable to pay tax under the reverse charge mechanism

Final Words

The main purpose of the reverse charge mechanism is to collect indirect tax easily and conveniently from the recipient while GST return filing so as to increase tax revenues more effectively in cases where the supplier of particular goods or services is situated in non-taxable territories or not well versed with the tax laws.

 

Original Source: Medium


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