Reverse charge mechanism under GST

Last Updated at: October 23, 2019
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Reverse charge mechanism under GST

While in ordinary cases, the supplier of either goods or services pays his or her share of tax depending on supply, reverse charge occurs when the charge is reversed, and the buyer has to pay tax on the purchase of a service or commodity. Here’s a look at everything you need to know about the Reverse Charge mechanism under the GST.

Application

This is as per rules mentioned in Section 9 (4) of the Central Goods and Service Tax Act, 2017. Recently a change was made by the Government concerning the Reverse Charge Mechanism’s applicability by publishing notification no. 02/2019  on 29th January 2019. The Reverse Charge concept comes into play in the following circumstances:

  • When a registered dealer takes the supply from an unregistered one
  1. If a supplier who is not registered as per the GST standards supplies goods or services to a vendor who has registered himself or herself onto the GST platform, then the reverse charge concept will be brought into effect.
  2. As per this mechanism, the buyer; that is the registered vendor, will have to pay a tax to the Government rather than the unregistered vendor.
  3. The buyer will then have to self-invoice the purchase he or she made and later pay Reverse Charge on it.
  4. If the purchase was made between states, then the buyer has to pay IGST while if the purchase was between vendors within the same state, then the registered vendor has to pay both CGST and SGST under the Reverse Charge Mechanism.
  5. As per notification no. 8/2017, 28th June 2017 transactions below INR 5,000 a day were exempted from having to pay Reverse Charges.
  6. Notification no. 38/2017, 13th October 2017, which was in effect till 31st March 2018, made central tax payable as per Reverse Charge Mechanism exempt from this scheme. This deadline of exemption was then extended to 30th September 2019 by notification no. 22/2018 on 6th August 2018.
  7. Notification no. 02/2019 which came out on 29th January 2019, was put to effect from 1st February 2019 and as per this notification, the Government could dictate the class of the registered person who has to pay Reverse Charge and also specify categories of goods and services for which the reverse charge mechanism is applicable.
  • When the deal is made through an e-commerce dealer or operator
    1.  If the purchase of supplies or services was made via an e-commerce operator, then the reverse charge mechanism becomes applicable to the operator, and hence, he or she will have to pay GST.
    2. For instance, UrbanClap is an e-commerce platform that aggregates the services of technicians and using it; you can avail the services of thousands of plumbers, electricians, technicians and even beauticians.
    3. As they provide such a service to people in and around a certain vicinity, UrbanClap is given the responsibility of paying the GST for their services, and this liability is lifted off the shoulders of the individual service providers who have listed themselves on the platform.
    4. If such an operator has no physical presence in a specific area, then their representative for that area is liable to pay the tax, and if there is no such representative, then the operator is expected to appoint someone for that role and then pay GST.

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  • Supply of specific goods as per regulations set by the CBEC

CBEC has published a list of products and services for which the mechanism of reverse charge is applicable, and any supplier of any product on that list is liable to pay Reverse Charges.

Time of Supply Of Goods

The time of supply for the reverse charge mechanism will be the earliest of the below-mentioned dates:

  1. Date of receipt of goods
  2. Date of payment (but as per Notification No. 66/2017 which came out on 15.11.2017, this is no longer valid)
  3. 30 days after issue of invoice by the supplier
  4. If none of these is quantifiable, then the time of supply is the date on which these accounts were reflected in the account book of the recipient.

For example, if the dates mentioned above are as follows:

  • Date of receipt  16th May 2019
  • Date of invoice 5th June 2019
  • Date of entry in books 19th May 2019

Then the Time of supply, in this case, is the 16th May 2019

For services, the time of supply for reverse charge will be the earliest of the following dates:

  1. Date of payment
  2. 60 days after issue of invoice by the supplier
  3. If both are not quantifiable, then the time of supply is considered to be as per the date of entry in the account books of the recipient.

For example, for the following data, here is what the time of supply will be;

  • Date of payment 16th July 2019
  • Date of invoice – 15th May 2019
  • Hence 60 days from then – 14th July 2019
  • Date of entry in books of receiver 20th July 2019

In this case, the Time of supply of service is 14th July 2018.

Self Invoicing

Self invoicing is the process followed whenever a purchase is made from a vendor who has not registered himself or herself on the GST website. Every such purchase falls under the Reverse Charge Mechanism as per GST laws. This occurs because in such cases, the supplier cannot file a GST-compliant invoice as they are not registered on the portal and as a result, become liable to pay the Reverse Charges on their behalf.

 

Reverse charge mechanism under GST

950

While in ordinary cases, the supplier of either goods or services pays his or her share of tax depending on supply, reverse charge occurs when the charge is reversed, and the buyer has to pay tax on the purchase of a service or commodity. Here’s a look at everything you need to know about the Reverse Charge mechanism under the GST.

Application

This is as per rules mentioned in Section 9 (4) of the Central Goods and Service Tax Act, 2017. Recently a change was made by the Government concerning the Reverse Charge Mechanism’s applicability by publishing notification no. 02/2019  on 29th January 2019. The Reverse Charge concept comes into play in the following circumstances:

  • When a registered dealer takes the supply from an unregistered one
  1. If a supplier who is not registered as per the GST standards supplies goods or services to a vendor who has registered himself or herself onto the GST platform, then the reverse charge concept will be brought into effect.
  2. As per this mechanism, the buyer; that is the registered vendor, will have to pay a tax to the Government rather than the unregistered vendor.
  3. The buyer will then have to self-invoice the purchase he or she made and later pay Reverse Charge on it.
  4. If the purchase was made between states, then the buyer has to pay IGST while if the purchase was between vendors within the same state, then the registered vendor has to pay both CGST and SGST under the Reverse Charge Mechanism.
  5. As per notification no. 8/2017, 28th June 2017 transactions below INR 5,000 a day were exempted from having to pay Reverse Charges.
  6. Notification no. 38/2017, 13th October 2017, which was in effect till 31st March 2018, made central tax payable as per Reverse Charge Mechanism exempt from this scheme. This deadline of exemption was then extended to 30th September 2019 by notification no. 22/2018 on 6th August 2018.
  7. Notification no. 02/2019 which came out on 29th January 2019, was put to effect from 1st February 2019 and as per this notification, the Government could dictate the class of the registered person who has to pay Reverse Charge and also specify categories of goods and services for which the reverse charge mechanism is applicable.
  • When the deal is made through an e-commerce dealer or operator
    1.  If the purchase of supplies or services was made via an e-commerce operator, then the reverse charge mechanism becomes applicable to the operator, and hence, he or she will have to pay GST.
    2. For instance, UrbanClap is an e-commerce platform that aggregates the services of technicians and using it; you can avail the services of thousands of plumbers, electricians, technicians and even beauticians.
    3. As they provide such a service to people in and around a certain vicinity, UrbanClap is given the responsibility of paying the GST for their services, and this liability is lifted off the shoulders of the individual service providers who have listed themselves on the platform.
    4. If such an operator has no physical presence in a specific area, then their representative for that area is liable to pay the tax, and if there is no such representative, then the operator is expected to appoint someone for that role and then pay GST.

Get new GSTIN For Your Business

  • Supply of specific goods as per regulations set by the CBEC

CBEC has published a list of products and services for which the mechanism of reverse charge is applicable, and any supplier of any product on that list is liable to pay Reverse Charges.

Time of Supply Of Goods

The time of supply for the reverse charge mechanism will be the earliest of the below-mentioned dates:

  1. Date of receipt of goods
  2. Date of payment (but as per Notification No. 66/2017 which came out on 15.11.2017, this is no longer valid)
  3. 30 days after issue of invoice by the supplier
  4. If none of these is quantifiable, then the time of supply is the date on which these accounts were reflected in the account book of the recipient.

For example, if the dates mentioned above are as follows:

  • Date of receipt  16th May 2019
  • Date of invoice 5th June 2019
  • Date of entry in books 19th May 2019

Then the Time of supply, in this case, is the 16th May 2019

For services, the time of supply for reverse charge will be the earliest of the following dates:

  1. Date of payment
  2. 60 days after issue of invoice by the supplier
  3. If both are not quantifiable, then the time of supply is considered to be as per the date of entry in the account books of the recipient.

For example, for the following data, here is what the time of supply will be;

  • Date of payment 16th July 2019
  • Date of invoice – 15th May 2019
  • Hence 60 days from then – 14th July 2019
  • Date of entry in books of receiver 20th July 2019

In this case, the Time of supply of service is 14th July 2018.

Self Invoicing

Self invoicing is the process followed whenever a purchase is made from a vendor who has not registered himself or herself on the GST website. Every such purchase falls under the Reverse Charge Mechanism as per GST laws. This occurs because in such cases, the supplier cannot file a GST-compliant invoice as they are not registered on the portal and as a result, become liable to pay the Reverse Charges on their behalf.

 

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.