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April 11, 2020

Reverse charge mechanism under GST for services and goods from April 2020

by facelesscompliance in Compliance Law, GST, GST Circular Notification

Reverse charge mechanism under GST for services and goods from April 2020

Reverse charge is a mechanism under which the recipient of the goods or services is liable to pay the tax instead of the provider of the goods and services. Under the normal tax regime, the supplier collects the tax from the buyer and deposit the same to the government. But under reverse charge mechanism (RCM), liability to pay tax moves from supplier to recipient.

As per section 24 of the CGST act 2017, person paying tax under reverse charge mechanism has to compulsorily get registered even if the turnover is below the threshold limit.

Time of supply under Reverse charge mechanism:

The time of supply determines the point when the liability to charge GST arises. It also indicates when a supply is deemed to have been made. GST provides separate time of supply for goods and services.

  1. In case of supply of goods:

As per section 12(3) the time of supply in case of goods shall be the earliest of the following, namely:

  • The date of the receipt of goods; or
  • The date of Payment; or
  • The date immediately following 30 days from the date of issue of invoice or any other documents, by whatever name called, in lieu thereof by the supplier.

Note: The date of payment must be determined as below:

i. the date of payment as entered in the books of account of the recipient; or

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

2 In case of supply of service:

As per section 13(3) the time of supply in case of service shall be the earliest of the following namely:

  • The date of payment; or
  • The date immediately following 60 days from the date of issue of invoice or any other documents, by whatever name called, in lieu thereof by the supplier.

Note: The date of payment must be determined as below:

i. the date of payment as entered in the books of account of the recipient; or

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

Categories of service on which tax will be payable under reverse charge mechanism under CGST act 2017:

The central government has notified the following categories of supply of services wherein the whole of central tax leviable under section 9 of the CGST act, shall be paid on reverse charge basis by the recipient of the such services:

Sr no.Category of supply of servicesSupplier of serviceRecipient of service
1.Supply of Services by a Goods Transport Agency (GTA) in respect of transportation of goods by road to- Any factory registered under the factories act, 1948; orAny society registered under the societies registration act, 1860; orAny cooperative society established by or under any law; orAny person registered under the CGST act or the IGST act or the SGST act or the UTGST act; orAny body cooperate established under any law; orAny partnership firm whether registered or not under any law including association of persons; orAny casual taxable person. RCM not applicable if recipient registered only for TDS: However, nothing contained in this entry shall apply to services provided by a goods transport agency by way of transport of goods in a goods carriage by road, to-   A department or establishment of the central government or state government or union territory; orLocal authority; orGovernmental agencies, which has taken registration under the CGST act 2017 only for the purpose of deducting tax u/s 51 and not for making a taxable supply of goods or services.Goods Transport Agency (GTA)Any factory registered under the factories act, 1948; orAny society registered under the societies registration act, 1860; orAny cooperative society established by or under any law; orAny person registered under the CGST act or the IGST act or the SGST act or the UTGST act; orAny body cooperate established under any law; orAny partnership firm whether registered or not under any law including association of persons; orAny casual taxable person; Located in the taxable territory
2.Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly.An individual advocate including a senior advocate or firm or advocatesAny business entity located in the taxable territory. Business entity being, litigant, applicant or petitioner located in taxable territory.
3.Services supplied by an arbitral tribunal to a business entityAn arbitral tribunalAn business entity located in the taxable territory
4.Services provided by way of sponsorship to any body corporate or partnership firmAny personAny body corporate or partnership firm located in the taxable territory
5.Services supplied by the central government, State government, Union territory or Local territory to a business entity excluding- renting of immovable property, andservices specified below- 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,Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;Transport of goods or passengersCentral government, State government, Union territory or Local territoryAny business entity located in the taxable territory.
6.Services supplied by the central government, State government, Union territory or Local authority by way of renting of immovable property to a person registered under the CGST act, 2017Central government, state government, union territory or Local authorityAny person registered under the CGST act, 2017
7.Services supplied by any person by way of transfer of development rights or floor space index for construction of a project by a promoterAny personPromoter
8.Long term lease of land by any person against consideration in the form of upfront amount and/ or periodic rent for construction of a project by a promoterAny personPromoter
9.Service supplied by an insurance agent to any person carrying on insurance businessAn insurance agentAny person carting on insurance business, located in taxable territory
10.Services supplied by a director of a company or a body corporate to the said company or the body corporateA director of a company or a body corporateThe company or a body corporate located in the taxable territory
11.Services supplied by a recovery agent to a banking company or a financial institution or a non-banking companyA recovery agentA banking company or a financial institution or a non-banking financial company, located in the taxable territory
12.Supply of services by a music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered u/s 13(1)(a) of the Copyright act 1957 relating to original dramatic, musical or artistic works to a music company, producer or the likeMusic composer, photographer, artist, or the likeMusic company, producer or the like, located in the taxable territory.
13.Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright covered u/s 13(1)(a) of the Copyright act 1957 relating to original literary works to a publisher.Author.Publisher located in the taxable territory. However, nothing contained in this entry shall apply where,- The author has taken registration under the CGST act, 2017 and filed a declaration in the specified form before the commencement of financial year with the jurisdictional CGST or SGST commissioner, as the case may be that he exercises the option to pay central tax on such services in accordance with section  9(1) of the CGST act 2017 under forward charge and to comply with all the provisions of CGST act, 2017 as they apply to a person liable for paying the tax in relation to the supply of any goods or services or both and that he shall not withdraw the said option within a period of 1 year from the date of exercising such optionThe author makes a declaration regarding payment of tax on forward charge on the invoice issued by him in Form GST Inv-I to the publisher
14Supply of services by the members of the overseeing committee to RBIMembers of the overseeing committee constituted by RBIRBI
15Services supplied by an Individual direct selling agents other than a body corporate, firm or LLP to Bank or NBFCsIndividual direct selling agents other than a body corporate, firm or LLPA Banking company or a non-banking financial company, located in the taxable territory
16Services provided by business facilitator to a banking companyBusiness facilitatorA Banking company located in a taxable territory
17Services provided by an agent of business correspondent to business correspondentAn agent of business correspondentA business correspondent located in a taxable territory
18Security services provided to a registered personAny person other than a body corporateA registered person, located in a taxable territory
19Services provided by way of renting of a motor vehicle provided to a body corporateAny person other than a body corporate paying central tax at the rate of 2.5% on renting of motor vehicles with ITC only if input service in the same line of businessAny body corporate located in the taxable territory
20Services of lending of securities under securities lending scheme, 1997 of SEBILender i.e. a person who deposit securities registered in his name or in the name of any other person duly authorized on his behalf with an approved intermediary for the purpose of lending under the scheme of SEBIBorrower i.e. a person who borrows the securities under the scheme through an approved intermediary of SEBI    
21Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipientAny person located in a non-taxable territoryAny person located in the taxable territory other than nontaxable online recipient
22Services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the customs station of clearance in IndiaA person located in nontaxable territoryImporter as per customs act 1962 who is located in the taxable territory.

Categories of goods on which tax will be payable under reverse charge mechanism under CGST act 2017:

The central government has notified the following categories of supply of goods wherein the whole of central tax leviable under section 9 of the CGST act, shall be paid on reverse charge basis by the recipient of the such goods:

S. No.Tariff Item, Sub-heading, or ChapterDescription of Supply of GoodsSupplier of GoodsRecipient of Supply
1.0801Cashew nuts, not shelled or peeledAgriculturistAny registered person
2.1404 90 10Bidi wrapper leaves(tendu)AgriculturistAny registered person
3.2401Tobacco leavesAgriculturistAny registered person
4.5004 to 5006Silk yarnAny person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarnAny registered person
4A5201 (Effective from 15-11-2017)Raw cottonAgriculturistAny registered person
5.Supply of lotteryState Government, Union Territory or any local authorityLottery distributor or selling agent. Explanation. – For the purposes of this entry, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the 2 provisions of sub-section (1) of Section 11 of the Lotteries (Regulations) Act, 1998.
6.Any Chapter (Effective from 13-10-2017)Used vehicles seized and confiscated goods, old and used goods, waste and scrapCentral Government, State Government, Union territory or a Local authority.Any registered person
7.Any Chapter (Effective from 28-5-2018)Priority Sector Lending CertificateAny registered personAny reg