COMPLETE ANALYSIS OF REVERSE CHARGE MECHANISM UNDER GST LAW
By: – Sandeep Rawat
Goods and Services Tax – GST
Dated:- 12-9-2018
COMPLETE ANALYSIS OF REVERSE CHARGE MECHANISM UNDER GST LAW
“Reverse charge mechanism under GST law is quite complicated. There is also misconception among the taxpayers. I have received a lot of queries related to the reverse charge mechanism. Therefore through this article, I have tried to prepare Critical analysis which may be useful to the taxpayers to avoid confliction.”
Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.
TWO TYPE OF REVERSE CHARGE SCENARIOS IN GST LAW.
* First is d
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the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient 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 or services or both.
Accordingly, whenever a registered person procures supplies from an unregistered supplier, he needs to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or services or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted.
REGISTRATION
A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of ₹ 20 lakhs (Rs. 10 lakhs for special category states except J & K) is not applicable to him.
ITC
A supplier cannot take ITC of GST paid o
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hen you have purchased from an unregistered supplier AND such purchase of goods or services falls under reverse charge.
This is due to the fact that your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.
COMPLIANCES IN RESPECT OF SUPPLIES UNDER REVERSE CHARGE MECHANISM:
* As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.
Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reversecharge
Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other wor
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registered suppliers will not attract GST. In other words, there is a reverse charge on buying from unregistered dealers if you are dealing with unregistered suppliers and making payments above ₹ 5,000.
For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the purchaser.
(TILL DATE IT IS NOT EFFECTIVE)
B. Services through an e-commerce operator
If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.
For example, UBER provides services of passengers transport through cab. UBER is liable to pay GST and collect it from the customers instead of the registered service providers.
If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a repre
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f service
1.
Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.
Any person located in a non-taxable territory
Any person located in the taxable territory other than non-taxable online recipient.
2.
GTA Services
Goods Transport Agency (GTA)
Any factory, society, co- operative society, registered person, body corporate, partnership firm, casual taxable person; located in the taxable territory
3.
Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.
An individual advocate, including a senior advocate or a firm of advocates
Any bu
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cal 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
Aninsurance 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
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, mus
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deeprawatca@gmail.com
(Mr. Sandeep Rawat has vast experience & knowledge in dealing with Direct and Indirect Taxation. He is providing his expertise service as Managing Partner at SRT Consultancy & Service. He can be reached atsandeeprawatca@gmail.com)
Reply By Yash Jain as =
Dear Sir,
Your kind end would be highly grateful if you can guide us on the follows and as under,
1. Application of Reverse Charge Mechanism – In case of Reimbursement of Expenses by an employee to employer if an employee purchases goods in course of duty (Example .: If our engineers do site visit and purchase fittings on which he makes payment, then whether such reimbursement will attract GST Under RCM?.
2. Updation vide GST Amendment Act, 29.08.2018 : As per amendment Act, the Government will notify companies/person who will be liable to pay Tax U/s 9(3). Is this correct
3. Making Invoices for Purchases from URD : At present thought RCM is suspended till 30.09.2019, but do we have to make self invoices a
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