GST Reverse Charge
Reverse charge is a mechanism in which the recipient of the goods or services is liable to pay the tax instead of the provider of the goods and services. In normal course of business, supplier collects the GST from the buyer and than deposits the same after adjustment from GST Input, if any avialable. But under reverse charge mechanism, liability to pay GST shifts from supplier to recipient.
As per section 2(98) of CGST Act’ 2017, “reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both
a. under sub-section (3) or sub-section (4) of section 9, or
b. under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act
Time Of Supply For Goods
Time of supply will be the earliest of these:
When the goods are received i.e. the date of receipt.
When the amount is paid i.e. the date of payment.
Date of payment shall be earliest of ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.
The date immediately after 30 days from the date the supplier issues invoice.
If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient enters in his books of account.
Example
Date of receipt of goods – 14th June 2017
Date of Payment – 14th August 2017
Date of Invoice – 1st July 2017
Date of Entry in books by recipient – 16th June 2017
Thus, Time of supply will be – 14th June 2017. If by any chance time of supply could not be determined under mentioned clauses then it will be 16th June 2017, i.e. Date of entry.
Time Of Supply For Services
Similarly, provisions are different for services under reverse charge. Time of supply will be the earliest of the below dates:
When the services are received i.e. the date of receipt.
When the amount is paid i.e. the date of payment.
Date of payment shall be earliest of – ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.
The date immediately after 60 days from the date the supplier issues invoice.
If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient of service enters in his books of account.
Example
Date of Payment – 14th June 2017
Date of Invoice – 1st July 2017
Date of Entry in books by recipient – 16th June 2017
Thus, Time of supply will be – 14th June 2017. If by any chance, time of supply could not be determined under mentioned clauses then it will be 18th June 2017, i.e. Date of entry.
If the supplier is located outside India, then the time of supply shall be the earliest of – ‘When the amount is paid i.e. the date of payment’ OR ‘When the recipient records the payment in his books of account’.
Applicability
Supply from an Unregistered dealer to a Registered dealer:
If a seller who is not registered under GST, and is supplying goods to a person who is registered under GST, then Reverse Charge provisions would apply. In this case, GST will have to be paid directly by the receiver to the Government instead of the supplier.
GST Registered dealer has to prepare self invoicing for Reverse Charge.
Also, in case if a GST registered person is making payment of INR 5,000 or more in a single day for his services than reverse charge also needs to be paid.
Supply Of Certain Goods Specifies By CBEC
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Services through an e-commerce operator:
If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator and he has to pay GST.
For example, Complypartner provides services of registration and other services, than complypartner is liable to pay GST and collect it from the customers instead of the registered service providers.
If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.
Supply Of Certain Services Specifies By CBEC
[su_button url=”https://www.complypartner.com/gst-portal/about_gst.html#demos” background=”#f37a08″ size=”4″]List Of Services[/su_button]
Purpose
The main purpose of reverse charge in GST is to increase tax compliance and tax revenues. As the government was unable to collect service tax earlier from various unorganized sectors like goods, transport etc. so provisions of reverse charge comes in role, Compliances and tax collections will be increased through this mechanism.The effort has been made to place the services as per the existing regime and Compliances and tax collections will therefore be increased through reverse charge mechanism.
Example:
Govisory services get its website designed from Ankit Heda who is not registered in GST and company has paid 50,000 in a day.
Ankit Heda would charged a bill of INR 50,000 only , as he is not registered in GST he can’t charge GST.
In Case, Govisory Pvt. Ltd. Pays more than 5,000 in a single day than they have to charge GST on reverse charge on same as per notification no. 08/2017 and they have to deposit 9,000 to government i.e. 18% of 50,000.
Other Point
Payment Of Reverse Charge- As per section 49(4) of CGST Act’2017, ITC can be used for payment of output tax only, therefore reverse charge has to be paid through cash only, Input tax can’t be used.
Advance payments – Advance payments are subject to Reverse charge mechanism and GST has to b paid on same.
GST compensation cess- It will be levied and collected at a future date which will be notified by the government at a later date.
Threshold Limit- Persons who have turnover till 20 lakh need not to pay tax, but persons who have to pay tax on RCM can’t avail this limit benefit.
Self Invoice- Every person who is liable to pay GST in reverse charge has to create a self invoice on his own and to keep in records for filing purpose.
Input On GST Reverse Charge- Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or intended to use in business. The recipient (i.e., who pays reverse tax) can avail input tax credit.
RCM On Input Service Distributor- An ISD cannot make purchases liable to Reverse Charge. If the ISD wants to procure such supplies and take the Reverse Charge paid as credit, the ISD should register as a Normal Taxpayer.
If a registered person takes a service from unregistered person and do payment of more than 5,000 in a day than reverse charge is applicable.
Case
Reverse Charge in Service Sector
[su_table]
| Service Provider | Service Receiver | GST to be paid by |
| Goods Transport Agency | Casual Taxable person, body corporate, partnership firm, any society, factory, any person registered under CGST, SGST, UTGST Act. | Service recipient. |
| Recovery Agent | Banking Company, NBFC or any financial institution. | Service recipient. |
| A director of a company or a body corporate | A company or a body corporate. | Service recipient. |
| An individual advocate or firm of advocates , An arbitral tribunal | Any business entity. | Service recipient. |
| Taxi driver or Rent a cab operator ( if service provided by e-commerce operator) | Any person | E-commerce Operator. |
| An insurance agent | Any person carrying on insurance business. | Service recipient. |
| Any person providing sponsorship services | Anybody corporate or partnership firm. | Service recipient. |
| A person located in non-taxable territory to a person located in non-taxable territory | Importer | Service recipient. |
| Author or music composer, photographer, artist, etc | Publisher, Music company, Producer | Service recipient. |
| Any person who is located in a non-taxable territory | Any person located in the taxable territory other than non-assessee online recipient (Business Recipient). | Service recipient. |
[/su_table]