Reverse Charge Mechanism
Reverse Charge Mechanism
Generally, the supplier of goods or services is liable to pay GST. be applicable to supplies made to a TDS deductor in terms of
However, in specified cases like imports and other notified notification no.9/2017-Central Tax (Rate) dated 28.06.2017. Thus,
supplies, the liability may be cast on the recipient under the Government entities who are TDS Deductors under Section 51 of
reverse charge mechanism. Reverse Charge means the liability to CGST Act, 2015, need not pay GST under reverse charge in case of
pay tax is on the recipient of supply of goods or services instead procurements from unregistered suppliers.
of the supplier of such goods or services in respect of notified
categories of supply. Registration: A person who is required to pay tax under reverse
charge has to compulsorily register under GST and the threshold
There are two type of reverse charge scenarios provided in law. limit of Rs. 20 lakhs (Rs. 10 lakhs for special category states except
First is dependent on the nature of supply and/or nature of J & K) is not applicable to them.
supplier. This scenario is covered by section 9 (3) of the CGST/
SGST (UTGST) Act and section 5 (3) of the IGST Act. Second ITC:A supplier cannot take ITC of GST paid on goods or services
scenario is covered by section 9 (4) of the CGST/SGST (UTGST) used to make supplies on which recipient is liable to pay tax.
Act and section 5 (4) of the IGST Act where taxable supplies by
any unregistered person to a registered person is covered. Time of Supply: The Time of supply is the point when the supply
is liable to GST. One of the factor relevant for determining time
As per the provisions of section 9(3) of CGST / SGST (UTGST) of supply is the person who is liable to pay tax. In reverse charge,
Act, 2017 / section 5(3)of IGST Act, 2017, the Government may, recipient is liable to pay GST. Thus time of supply for supplies under
on the recommendations of the Council, by notification, specify reverse charge is different from the supplies which are under
categories of supply of goods or services or both, the tax on forward charge.
which shall be paid on reverse charge basis by the recipient of
such goods or services or both and all the provisions of this Act In case of supply of goods, time of supply is earliest of -
shall apply to such recipient as if he is the person liable for paying
the tax in relation to the supply of such goods or services or both. • Date of receipt of goods; or
• Date of payment as per books of account or date of debit in bank
Similarly, section 9(4) of CGST / SGST (UTGST) Act, 2017 / section account, whichever is earlier; or
5(4) of IGST Act, 2017 provides that the tax in respect of the • The date immediately following thirty days from the date of issue
supply of taxable goods or services or both by a supplier, who is of invoice or similar other document.
not registered, to a registered person shall be paid by such person In case of supply of services, time of supply is earliest of -
on reverse charge basis as the recipient and all the provisions of • Date of payment as per books of account or date of debit in bank
this Act shall apply to such recipient as if he is the person liable for account, whichever is earlier; or
paying the tax in relation to the supply of such goods or services • The date immediately following sixty days from the date of issue
or both. Accordingly, wherever a registered person procures of invoice or similar other document.
supplies from an unregistered supplier, he need to pay GST on
Where it is not possible to determine time of supply using above
reverse charge basis. However, supplies where the aggregate
methods, time of supply would be date of entry in the books of
value of such supplies of goods or service or both received by a
account of the recipient.
registered person from any or all the unregistered suppliers is less
than five thousand rupees in a day are exempted. ( Notification Compliances in respect of supplies under reverse charge
8/2017-Central Tax (Rate) dated 28.06.2017). However, vide mechanism:
notification no.38/2017-Central Tax (Rate) dated 13.10.2017, • As per section 31 of the CGST Act, 2017 read with Rule 46 of the
(corresponding IGST notification no.32/2017-Integrated Tax CGST Rules, 2017, every tax invoice has to mention whether the
(Rate) dated 13.10.2017) all categories of registered persons are tax in respect of supply in the invoice is payable on reverse charge.
exempted from the provisions of reverse charge under 9(4) of Similarly, this also needs to be mentioned in receipt voucher as well
CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017, till as refund voucher, if tax is payable on reverse charge.
31.03.2018. This exemption is available only till 31.03.2018. • Maintenance of accounts by registered persons: Every registered
person is required to keep and maintain records of all supplies
The provisions of section 9(4) of the CGST Act, 2017, will not attracting payment of tax on reverse charge
• Any amount payable under reverse charge shall be paid by debiting the
S. Description of supply Supplier of Recipient of
electronic cash ledger. In other words, reverse charge liability cannot be
No. of service service service
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 1. Any service supplied Any person Any person located
otherwise eligible. by any person who is located in a in the taxable
• Invoice level information in respect of all supplies attracting reverse located in a non-taxable non-taxable territory other
charge, rate wise, are to be furnished separately in the table 4B of GSTR-1. territory to any person territory than non-taxable
• Advance paid for reverse charge supplies is also leviable to GST. The other than non-taxable online recipient.
person making advance payment has to pay tax on reverse charge basis. online recipient.
2. GTA Services Goods Any factory,
Supplies of goods under reverse charge mechanism:
Transport society, co-
Agency operative society,
S. Description of Supplier of goods Recipient of
(GTA) who registered person,
No. supply of goods goods
has not paid body corporate,
1. Cashew nuts, Agriculturist Any registered integrated partnership firm,
not shelled or person tax at the casual taxable
peeled rate of 12% person;
2. Bidi wrapper Agriculturist Any registered located in the
leaves (tendu) person taxable territory
3. Tobacco leaves Agriculturist Any registered 3. Legal Services by An Any business entity
person advocate individual located in the
advocate taxable territory
4 Silk yarn Any person who Any registered
manufactures silk yarn
including
person
from raw silk or silk a senior
worm cocoons for advocate
supply of silk yarn or firm of
advocates
4A. Raw cotton Agriculturist Any registered
person. 4. Services supplied by An arbitral Any business entity
an arbitral tribunal to a tribunal located in the
5. Supply of lottery State Government, Lottery business entity taxable territory
Union Territory or any distributor or
local authority selling agent 5. Services provided by Any person Any body corporate
way of sponsorship to or partnership
6. Used vehicles, Central Government, Any registered any body corporate or firm located in the
seized and State Government, person partnership firm taxable territory
confiscated Union territory or a
goods, old and local authority
used goods,
waste and scrap