Wednesday, 5 July 2017

What is Reverse Charge under GST or Reverse Charge Mechanism under GST

Reverse Charge under GST, Reverse Charge Mechanism under GST – Complete Details as Per Model GST Law, Reverse Charge Applicability as Per GST Model Law, Check all Rules for Reverse Charge under GST Law. Applicability of Reverse Charge as Per Revised Model GST Law in India. Meaning of Reverse Charge as per GST Law, Introduction of Reverse Charge as Per GST Law, GST Reverse charge mechanism. Later part of Section 8(3) talks about reverse charge applicability for specified categories of services, wherein the recipient of goods or services would be liable to for paying tax in relation to supply of goods and or services. Now scroll down below n check more details for “Reverse Charge under GST – Complete Details as Per Model GST Law”

Reverse Charge Mechanism under GST with Example

1) under reverse charge mechanism only the buyer is the responsible person to pay the GST tax because the registration was not taken from the department by the seller
2)Here the buyer should not claim any input tax credit on his purchase because he did not paid it but GST will be collected from him on his sale
In reverse charge mechanism the buyer of the goods did not setoff any taxes from his output tax because he did not paid any tax on his purchase.
The entire amount of output tax liability has to paid to the GST DEPARTMENT
Example – Q) Ravi has purchased 10000 value of the goods from the dev and the GST rate is 10%(SUPPOSE). But the DEV was not registered with the GST department and ravi is selling these goods for 12000
Solution: ( under reverse charge mechanism)

  • Ravi did not paid any GST TAX that is 1000 (10000*10%) but from his sale he will collect 1200 GST TAX( 12000*10%)
  • Ravi should not claim any input tax of( 1000)because he did not paid it but he has to pay total amount of 1200 to the GST department.

What is the reverse Charge mechanism under GST

Section 2 (98 ) of CGST Act 2017
  • the liability to pay tax by the recipient of supply of goods or services or both
  • instead of the supplier of such goods or services
GST REGISTRATION UNDER RCM
All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold
[Threshold:- turnover in a financial year exceeds Rs 20lakhs (Rs 10 lakhs for North eastern and hill states)]

Situations Where The Reverse Charge Will Apply

  • Unregistered dealer selling to a registered dealer
  • Services through an e-commerce operator
  • CBEC has issued a list of services on which reverse charge is applicable. 

Time 0f Supply for Goods Under Reverse Charge

In case of reverse charge, the time of supply shall be the earliest of the following dates -:
  • (a) the date of receipt of goods OR
  • (b) the date of payment OR
  • (c) the date immediately after THIRTY days from the date of issue of invoice by the supplier (60 days for services)
If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient
Example:
  1. Date of receipt of goods 15th May 2018
  2. Date of payment 15th July 2018
  3. Date of invoice 1st June 2018
  4. Date of entry in books of receiver 18th May 2018
Time of supply of goods 15th May 2018
If for some reason time of supply could not be determined supply under (1), (2) or (3) then it would be 18th May 2018 i.e., date of entry

Time of supply for services under reverse charge

In case of reverse charge, the time of supply shall be the earliest of the following dates
(a) The date of payment
OR
(b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods)
Example for reverse charge:
If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.
When supplier is located outside India
In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be
the date of entry in the books of account of the receiver
OR
the date of payment
whichever is earlier
Example for reverse charge:
  • Date of payment 15th July 2018
  • Date of invoice 1st July 2018
  • Date of entry in books of receiver 18th July 2018
Time of supply of service 15th May 2018
If for some reason time of supply could not be determined supply under (a) or (b) then it would be 18th July 2018 i.e., date of entry in books.

list of services on which reverse charge is applicable

Service ProviderService ReceiverService tax payable by Service recipient
Goods Transport AgencyCasual Taxable person, body corporate, partnership firm, any society, factory, any person registered under CGST, SGST, UTGST Act.100%
Recovery AgentBanking Company, NBFC or any financial institution100%
A director of a company or a body corporateA company or a body corporate100%
An individual advocate or firm of advocatesA company or a body corporate100%
An arbitral tribunalAny business entity.100%
Taxi driver or Rent a cab operator ( if service provided by e-commerce operator)Any person – E-commerce Operator100%
An insurance agentAny person carrying on insurance business100%
Any person providing sponsorship servicesAnybody corporate or partnership firm.100%
A person located in non-taxable territory to a person located in non-taxable territoryImporter100%
Author or music composer, photographer, artist, etc ( Transfer or permitting the use or enjoyment of a copyright)Publisher, Music company, Producer100%
Any person who is located in a non-taxable territoryAny person located in the taxable territory other than non-assessee online recipient (Business Recipient)100%
Any person who is located in a non-taxable territoryAny person located in the taxable territory other than non-assessee online recipient (Business Recipient)100%

Input Tax Credit under RCM

  • The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services.
  • The only condition is that the goods and services are used or will be used for business or furtherance of business.
  • Unfortunately, ITC cannot be used to pay output tax, which means that payment mode is only through cash under reverse charge.

More Details for Reverse Charge under GST

“Reverse charge’’ means the liability to pay tax by the recipient of supply of goods or services instead of the supplier of such goods or services in respect of such categories of supplies as notified under sub-section (3) of Section 8.
The concept of Reverse Charge existed earlier under the Service Tax provisions for services like Works Contract, Manpower, Goods transport Agencies, Legal services etc., However, under the GST, Reverse charge mechanism has been introduced both for Goods and Services.
Section 12(3) talks about Time of supply of Goods, wherein for Reverse Charge cases,the time of supply would be the earliest of the following dates,
  • (a) The date of the receipt of goods, or
  • (b) The date on which the payment is made, or
  • (c) The date immediately following thirty days from the date of issue of invoice by the supplier:
While the above said concept is already prevalent under the Service Tax regulations, the concept is altogether new under the Excise and especially VAT, where predominantly the point of determinants were removal from factory and sale.
Section 13 (3) talks about Time of Supply of Services, wherein for Reverse Charge cases, the time of supply would be the earliest of the following dates
  • (a) The date on which the payment is made, or
  • (b) The date immediately following sixty days from the date of issue of invoice by the supplier
In case, it is not possible to determine the time of supply of services under the above said options, the time of supply shall be the date of entry in the books of account of the recipient of supply.
It has been further explained that for the purpose of clause (a), “the date on which the payment is made” shall be the date on which the payment is entered in the books of accounts of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.
In case of “associated enterprises” transactions of service nature attracting Reverse Charge, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier. For the purpose of GST Act, “associated enterprise” shall have the meaning assigned to it in Section 92A of the Income tax Act, 1961.
A person who is required to pay tax under Reverse Charge is required to obtain registration under the GST Law, irrespective of the threshold limit.
As per the proposed Goods and services Tax (Compensation to the States for Loss of Revenue) Bill, 2016, GST compensation cess at a prescribed rate on the value determined under the CGST Act, would be leviable on supplies of goods and services, including supplies on which reverse charge is payable under Section 7(3) of the CGST Act.