Skip to main content

All about Reverse Charge under GST

Reverse charge is a mechanism where the recipient of the goods and/or services is liable to pay GST instead of the supplier.
In this article, we discuss the following topics:
1. What is Reverse Charge?
2. When is Reverse Charge Applicable?
3. Time of Supply under Reverse Charge
4. What is Self-Invoicing?
5. Frequently Asked Questions(FAQ)

1. What is Reverse Charge?

Normally, the supplier of goods or services pays the tax on supply. In the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.

2. When is Reverse Charge Applicable?

A. Supply from an Unregistered dealer to a Registered dealer

If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier.
The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.
For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the purchaser.

Latest update as per 22nd GST Council Meeting held on 6th Oct 2017

 Reverse charge is deferred till 31.03.2018.

B. Services through an e-commerce operator

If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.
For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap 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.

C. Supply of certain goods and services specified by CBEC

CBEC has issued a list of goods and a list of services on which reverse charge is applicable.

3. Time of Supply under Reverse Charge

A. Time Of Supply in case of Goods
In case of reverse charge, the time of supply shall be the earliest of the following dates:
  • the date of receipt of goods
  • the date of payment*
  • the date immediately after 30 days from the date of issue of an invoice by the supplier
If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.
*This point is no more applicable based this Notification No. 66/2017 – Central Tax issued on 15.11.2017
Illustration:
  1. Date of receipt of goods 15th May 2018
  2. Date of invoice 1st June 2018
  3. Date of entry in books of receiver 18th May 2018
The Time of supply of service, in this case, will be 15th May 2018
B. Time Of Supply in case of Services
In case of reverse charge, the time of supply shall be the earliest of the following dates:
  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the supplier
If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.
Illustration:
  1. Date of payment 15th July 2018
  2. Date of invoice 15st May 2018
  3. Date of entry in books of receiver 18th July 2018
The Time of supply of service, in this case, will be 15th May 2018

4. What is Self Invoicing?

Self-invoicing is to be done when you have purchased from an unregistered supplier AND such purchase of goods or services falls under reverse charge.
This is due to the fact that your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.

5. Frequently Asked Questions(FAQ)

  • What happens if the receiver of goods and/or services is required to pay tax under Reverse Charge but is not a registered dealer?
All taxpayers required to pay tax under reverse charge have to register for GST and the threshold of Rs 20 Lakhs is not applicable to them.
  • Is Input Tax Credit allowed under Reverse Charge?
Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit.
  • What if an Input Service Distributor receives supplies liable to Reverse Charge?
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.

Comments

Post a Comment

Popular posts from this blog

Advisory To Taxpayers Liable To File GSTR-1

The taxpayers whose aggregate turnover during preceding financial year exceeded Rs. 1.5 Cr or the new registrants who estimate their turnover to exceed Rs. 1.5 Cr during current financial year, have to file return on  monthly basis . Filing of GSTR-1 for the tax period of August, 2017 and onwards is likely to commence soon. In the meantime, such taxpayers can upload the invoices for August, September, October 2017 to avoid last minute rush. The taxpayers whose aggregate turnover during the preceding financial year remained upto Rs. 1.5 Cr or the new registrants who estimate their turnover to remain upto Rs. 1.5 Cr during current financial year, but who intends to file return on monthly basis, can also upload the invoices for the month of August, 2017. All other taxpayers liable to file GSTR-1 shall upload the invoices and file GSTR-1 for the quarter ending September, 2017 after the option to file the same is  available  on the  portal . The taxpayers  eligible  to file return on
Post a Comment
Read more

Government rules out review of GST for restaurants :

The government has ruled out the possibility of any review in the goods and service tax ( GST ) regime for restaurants, amid intense lobbying by a section of the eateries to restore the benefit of  input tax credit  ( ITC ). Representatives of the  National Restaurant Association of India  ( NRAI ), whose members are facing intense criticism from the government for jacking up menu prices, met the finance ministry brass 10 days ago to give their reason for a price increase, after the government cut the levy to 5 per cent for all restaurants. The restaurants, which belong to newer chains, have argued for a restoration of ITC, while blaming the withdrawal of the benefit for an increase in prices. Government sources, however, There was no question of a review as the extent of price increase was unjustified. In fact, a senior official told earlier that restaurants were behaving in an anti-competitive manner and the government would look at the possibility of an anti-profiteering acti
Post a Comment
Read more

Time, Place and Value of Supply Under GST.

Under  GST , 3 types of taxes can be charged in the invoice. SGST and CGST in case of an intra-state transaction and IGST in case of an interstate transaction. But deciding whether a particular transaction is inter or intrastate is not an easy task. Think about an online training where customers are sitting in different parts of the world. Or say in case hotel services, where the receiver may have an office in another state and may be visiting the hotel only temporarily. Or where goods are sold on a train journey passing through different states. To help address some of these situations, the IGST act lays down certain rules which define whether a transaction is inter or intrastate. These rules are called the place of supply rules. There are three important concepts: Importance of Time, Place and Value of Supply 1. Time of Supply A. Supply of goods B. Supply for services C. Reverse charge 2. Place of supply A. Supply of Goods B. Supply for Services 3. Val
Post a Comment
Read more