1. Reverse Charge Mechanism under GST

 

Normally, when GST is payable, the onus is on the supplier. However, there are certain situations, where the receiver is liable to pay the GST charges, which is known Reverse Charge Mechanism.

 

 

2. What is Reverse Charge in GST?

 

1. It is a new concept that is introduced in GST in India, to increase tax revenues, coverage and compliance from partly or unorganized sectors.
2. Earlier goods were exempt from this scheme, now the collection of GST will increase tremendously. In GST, the supplier will be liable to collect tax on goods and services provided.
3. But the central government has the power to notify categories of supplies against which service recipient has to discharge the tax liability. Hence, all the provisions of the Act will now be applied to the recipient of such goods or services as if he is the supplier of such goods or services.
4. When a person becomes liable to pay tax on the reverse charge, certain provisions like threshold exemption, time of supply, availing of input credit changes.
5. There is a threshold limit for turnover aggregating to Rs 20 lakh for registration for normal taxpayers but under reverse charge, there is no such limit. The person has to be registered under GST irrespective of the aggregate limit.

 

3. Section 9(4) of GST

 

Under the provisions of this section 9(4) of CGST Act 2017, GST is payable on the supply of goods or services or both from unregistered supplier to a registered supplier in the form on Reverse Charge Mechanism (RCM).

 

4. Reverse Charge Applicability

 

Services supplied by an electronic commerce operator will attract reverse charge and they will be liable to pay GST. If the assesse has no physical presence in the taxable area, then the representative of such ecommerce operator will be liable to pay tax. If there is no representative, then the assesse has to appoint one who will be liable to pay GST

 

 

5. Provisions for Reverse Charge under GST

 

1. Registration under Reverse Charge

The Central Government has on 19th June 2016 exempted such persons from obtaining registration who are only engaged in making supplies of taxable goods or services, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services.

2. Invoicing rules

Every person who is paying tax on the basis of reverse charge has to mention this fact in his tax invoice that is being issued. A registered person who is liable to pay tax under reverse charge i.e., the buyer has to mandatorily issue an invoice in respect of goods or services received by him from the supplier who is not registered.

3. Payment of Tax

Payment of Tax under reverse charge mechanism shall be paid through Electronic Cash Ledger. Reverse Charge liability cannot be paid through Input Tax Credit.

4. Exemption from Paying Tax under GST

In general, a person supplying goods/services up to an aggregate turnover of Rs20 lakhs in a financial year is exempted from paying tax. But, taxpayers paying tax on the basis of reverse charge under GST are not eligible for this threshold exemption.

5. Exemption from RCM

In case of intra-state supply of goods and services, government had exempted goods and services received by unregistered dealers under section 9(4), provided that the aggregate of such goods or services or both received in a day, from one or more suppliers must not exceed Rs.5000/- a day.  

1. This exemption is applied on when the goods and services are from unregistered dealer.
2. Only in case of Intra-State supply.
3. In case the supplies of goods or services or both exceeds Rs. 5000/-, the exemption will not be available. GST is payable on the whole amount.

6. Composition Scheme under GST

In general, small taxpayers with the aggregate turnover of Rs75 lakhs in a financial year are eligible to pay tax under composition scheme  But, taxpayers paying tax on the basis of reverse charge under GST are not eligible for composition scheme.

 

6. Time of supply

In Case of Goods

In the case of supplies of goods when tax is payable under reverse charge mechanism, the time of supply should be earliest of the following dates:

Date of the receipt of goods, or

Date on which the payment is made, or

Date immediately after 30 days from the date of issue of the invoice by the supplier (30 days for goods), or

Date of debit in the books of accounts.

 

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