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Reverse Charge Mechanism under GST

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Reverse Charge Mechanism under GST - Team Ca4Globe

Normally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be transferred on the recipient under the reverse charge mechanism. Reverse Charge means the liability to pay tax is on the recipient of supply ofgoodsorservicesinsteadofthesupplierofsuchgoodsor services in respect of notified categories ofsupply.

There are two type of reverse charge scenarios provided in law. First is dependent on the nature of supply and/or natureofsupplier.

Second scenario is where taxable supplies by any unregistered person to a registered person iscovered.

However, supplies where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted. (Notification 8/2017-Central Tax (Rate) dated 28.06.2017)

However, vide notification no.22/2018-Central Tax (Rate) dated 06.08.2018, all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017, till 30.09.2019. This exemption is available only till 30.09.2019

Governmententities who are TDS deductors under Section 51 of CGST Act, 2015, need not pay GST under reverse charge in case of procurements from unregistered suppliers.

Compliances in respect of supplies under reverse charge mechanism:

  1. 1. As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.
  2. 2. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge
  3. 3. Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.
  4. 4. . Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.
  5. 5. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis.

Supplies of goods under reverse charge mechanism:

# Description of supply ofGoods Supplier of goods Recipient of Goods
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 silk worm cocoons for supply of silk yarn Any registered person
5 Raw cotton Agriculturist Any registered person
6 Supply of lottery State Government, Union Territory or any local authority Lottery distributor or selling agent
7 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 goods under reverse charge mechanism:

# Description of supply ofGoods Supplier of goods Recipient of Goods
1 Import of Services
Any service supplied by any person who is located in anon-taxable territory to any person other than non-taxableonline Recipient.
Any person located in a non-taxable territory Any person located in the taxable Territory other than non- taxable online recipient.
2 GTA Services Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12% or CGST & SGST at the rate of 6% separately 1. Any factory,
2. society,
3. co- operative society,
4. registered person,
5. body corporate,
6. partnership firm,
7. casual taxable person located in the taxable territory
3 Legal Services
Legal Services by advocate
An individual advocate including a senior advocate or firm of advocates Any business entity located in the taxable territory
4 Arbitral Services
Services supplied by an arbitral tribunal to a business entity
An arbitral tribunal Any business entity located in the taxable territory
5 Sponsorship Services
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 Government Services
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 specifiedbelow-
(i) services by the Department of Postsby 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) servicesin relation to an aircraft or a vessel, inside or outside the precinctsof a port or an airport; transport of goods or passengers.
Central Government, State Government, Union territory or local authority Any business entity located in the taxable territory
7 Director Services 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 Insurance Agent Services
Services supplied by an insurance agent to any person carrying on insurance business
An insurance agent Any person carrying on insurance business, located in the taxable territory
9 Recovery Agent Services
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 Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory
11 Copy Right Services
Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of 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, photo grapher, artist , or the like 1. Publisher,
2. music company,
3. producer
or the like, located in the taxable territory
12 RBI Services
Supply of services by the members of Overseeing Committee to Reserve Bank of India
Members of Overseeing committee constituted by Reserve Bank of India Reserve Bank of India.
13 Security Services
Supply of services by way of security personnel
Any person other than Body corporate Any business entity located in the taxable territory

Input tax Credit: - if Recipients of services pay the tax under reverse charge then they are allowed to the credit of tax paid.

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