Reverse Charge mechanism

All About Reverse Charge Mechanism Under GST

What is Reverse Charge Mechanism?

Under Reverse Charge mechanism is the beneficiary of the good and services is liable to pay the tax instead of the provider of the goods or services in respect of specified categories of supplies.

Under the normal taxation regime, supplier collects the tax from the buyer and deposits the same tax after adjusting the output tax liability with the input tax credit available. But under reverse charge mechanism, liability to pay tax shifts from supplier to recipient.

Where the Reverse Charge will Apply?

A. Supply from an Unregistered dealer to a Registered dealer

If Unregistered dealer is selling to registered dealer, in that case, the registered dealer is required to pay GST on reverse charge basis for that supply

 

Reverse charge is applicable under GST on services

CBEC has notified a list of 12 services on which tax shall be paid by the Beneficiary that is

Non-resident service provider

Goods Transport Agencies

Legal service by an Advocate/ Firm of Advocates

Arbitral Tribunal

Sponsorship Services

Specified Services provided by Government or Local Authority to Business entity

Services of a director to a company

Insurance agent

Recovery Agent of Bank/FI/ NBFC

Transportation Services on Import

Permitting use of Copyright

Radio Taxi services to E-commerce aggregator (eg: Ola, Uber, etc.)

 

B. Services through an e-commerce operator

 

If Service supplied by an Electronic Commerce will attract reverse charge and they will be liable to pay GST.

For example, UrbanClap supplies services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers.

 

C. Supply of certain goods and services specified by CBEC

All other categories of supplies will be notified by Central or State government that will fall under the reverse charge and issued a list of goods and services on which reverse charge is applicable.

 

3. Time of Supply

A. Time Of Supply in case of Goods

 

In case of supplying reverse charge, the time of supply shall be the earliest of the following dates:

the date of receipt of goods

the date of payment as entered in the books of account of the beneficiary.

the date immediately after 30 days from the date of issue of an invoice or any other document 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 beneficiary

 

For Example:

Date of receipt of goods – 16th May 2017

Date of Payment – 16th July 2017

Date of Invoice – 1st June 2017

Date of Entry in books by recipient – 18th May 2017

 

B. Time Of Supply in case of Services

In case of supplying reverse charge for services, then the time of supply shall be the earliest of the following dates:

 

The date of payment after sixty 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 beneficiary.

 

For Example:

 

Date of Payment – 18th August 2017

Date of Invoice – 1st September 2017

Date of Entry in books by recipient – 19th August 2017

 

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.

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Comments

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