Reverse Charge Mechanism

Reverse Charge Mechanism

Liablility to pay GST arises at the time of supply of services as explained in section 12 and  at the time of supply of service as explained in section 13 of GST ACT 2017.

Normally GST is liable to pay on outward of Goods and services made.

But there is some exception where GST is laible to pay on inward of Goods and Services that is called Reverse Charge Mechanism. In other word under reverse charge mechanism recipient of goods and services is liable to pay GST  tax.

Section 9(3) of GST Act, 2017

The Central Government gives power to GST council that  recommand certain specify categories fo goods and services or both the tax on 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 shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods .

Supplies of goods under reverse charge mechanism

S/ No. Description of supply of Goods Supplier of goods Recipient of  Goods
1. Cashew nuts, not shelled or peeled Agriculturist Any registered person
2. Bidi wrapper

eaves (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
4A Raw cotton Agriculturist Any registered person
5 Supply of lottery State Government, Union Territory or any local authority Lottery distributor or selling agent
6 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 services under reverse charge mechanism:

S/ No. Description of supply of

Service

Supplier of service Recipient of service
1. Any service supplied by any person who is located in a non-taxable territory to any person other than nontaxable online

recipient.

Any person located in a non-taxable territory Any person located in the taxable territory other than nontaxable online recipient.
2. GTA Services Goods Transport Agency (GTA) who has not paid integrated tax at the rate  of 12% Any factory, society, cooperative society, registered person, body corporate, partnership firm, casual taxable person; located in the taxable

territory

3. Legal Services by advocate An individual advocate including a senior advocate or firm of advocates Any business entity located in the taxable

territory

4. Services supplied by an arbitral tribunal to a business  entity

 

An arbitral

tribunal

Any business entity located in the taxable

territory

5. Services provided by way of sponsorship to any body corporate or partnership

firm

Any person Any body corporate or partnership firm located in the taxable territory
6. 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 specified below- (i) services by the Department of Posts by 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) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.

 

Central Government, State Government, Union territory or local authority Any business entity located in the taxable territory
7. 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. 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. 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

 

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. Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a 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, photograph her, artist, or the like Publisher, music company, producer or the like, located in the taxable territory.
12. Supply of services by the members of Overseeing Committee to Reserve Bank of India Members of Overseeing Committee constituted by the Reserve Bank of India Reserve Bank of India

 

 

 

Section 9(4) of GST Act, 2017

The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply goods and services.

Time of supply in case of services

When taxes payable under reverse charge mechanism, whichever is earliest from the following dates:-

  • the date of payment; or
  • the date immediately following after sixty days from the date of issue of the invoice by the supplier; whichever is earlier

 

 

Time of supply in case of goods

When tax payable under Reverse Charge, whichever is earliest from the following dates:-

the date of payment as entered in the books of account of the recipient;

the date of the receipt of goods;

the date on which the payment is debited in his bank account, whichever is earlier;

the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier

How to pay GST under Reverse Charge mechanism

Every person who receipt  goods or services under Reverse charge Mechanism has to compulsorily registered  under section 24 of GST Act,2017

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