Know all about Reverse Charge Mechanism under GST
Introduction
In most case the supplier of goods or services is liable to pay GST. However, in specified cases, the liability is cast on the recipient under the reverse charge mechanism (RCM). Let us understand provisions about reverse charge mechanism in detail.
When is RCM Applicable?
RCM is generally applicable in 3 cases:-
1.Supply from a unregistered dealer to a registered dealer
For instance, Mr A is a vendor who is unregistered, supplies goods to Mr B, who is registered under GST. This transaction would attract RCM provisions which means that the GST will have to be paid directly by Mr B (recipient) to the Government instead of Mr A (supplier).
2. Services through an e-commerce operator
For instance, Uber provides for the transportation of passengers. 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 representative who will be held liable to pay GST.
3. Goods and Services notified by the government which are subject to GST under RCM. Following supplies have been notified by the government:
Supplies of goods under RCM:-
| Supply | Supplier | Recipient |
| Cashew nuts, not shelled or peeled | Agriculturist | Any registered person |
| Bidi wrapper leaves (tendu) | Agriculturist | Any registered person |
| Tobacco leaves | Agriculturist | Any registered person |
| Silk Yarn | Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn | Any registered person |
| Raw cotton | Agriculturist | Any registered person |
| Supply of lottery | State Government, Union Territory or any local authority | Lottery distributor or selling agent |
| Used vehicles, seized and confiscated goods, old and used goods, waste and scrap | State Government, Union Territory or any local authority | Any registered person |
| Priority Sector Lending Certificate | Any registered person | Any registered person |
Supplies of services under RCM:-
| Nature of Supply | Supplier | Recipient |
| Provision of services | Any person located in a non-taxable territory | Any person located in the taxable territory other than non-taxable online recipient. |
| Goods Transport Agency (GTA) services | GTA who has not paid integrated tax at the rate of 12% or central and state tax @6% each | Any factory, society, cooperative society, registered person, body corporate, partnership firm, casual taxable person located in the taxable territory |
| Legal Services | An individual advocate including a senior advocate or firm of advocates | Any business entity located in the taxable territory |
| Services supplied by an arbitral tribunal to a business entity | An arbitral tribunal | Any business entity located in the taxable territory |
| Services provided by way of sponsorship | Any Person | Any body corporate or partnership firm located in the taxable territory |
| Any service, except:- 1.renting of immovable property 2. 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 CG, SG or Union territory or local authority 3.services in relation to an aircraft or vessel, inside or outside the precincts of a port or an airport 4. transport of goods or passengers | Central Government, State Government, Union territory or local authority | Any business entity located in the taxable territory |
| Services by way of renting of immovable property | Central Government, State Government, Union territory or local authority | Any person registered under the CGST Act, 2017 |
| Services supplied by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project | Any person | Promoter |
| Long term lease of land (30 years or more) against consideration in the form of upfront amount and/or periodic rent for construction of a project | Any person | Promoter |
| Provision of services | A director of a company or a body corporate | The said company or body corporate located in taxable territory |
| Provision of services | An insurance agent | Any person carrying on insurance business located in the taxable territory |
| Provision of services | A recovery agent | A banking company, financial institution or a non-banking financial company located in the taxable territory |
| Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India | A person located in non-taxable territory | Importer, as defined in section 2 of the Customs Act, 1962 located in the taxable territory |
| Supply of services by way of transfer or permitting the use or enjoyment of a copyright covered under section 13 of the Copyright Act, 1957 relating to original dramatic, musical or artistic works | Music composer, photographer, artist, or the like | Music company, producer or the like, located in the taxable territory |
| Supply of services by way of transfer or permitting the use or enjoyment of a copyright covered under Section 13 of the Copyright Act, 1957 relating to original literary works | Author | Publisher located in the taxable territory Provided this entry shall not be applied where, 1. the author is a registered person under GST and filed a declaration, that he exercises the option to pay tax under forward charge and he shall not withdraw the option within 1 year from the date of exercising option 2. the author makes a declaration to issue the invoice to the publisher in Form GST Inv-I. |
| Provision of services | Members of Overseeing Committee constituted by the Reserve Bank of India | Reserve Bank of India |
| Provision of services | Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm | Bank or non-banking financial company (NBFCs) located in taxable territory |
| Provision of services | Business facilitator | A banking company, located in the taxable territory |
| Provision of services | An agent of business correspondent | A business correspondent, located in the taxable territory |
| Security services (services provided by way of supply of security personnel) Nothing contained in this entry shall apply to 1. Department or Establishment of the CG or SG or Union territory, local authority, governmental agencies who are registered only purpose of making TDS u/s 51 but not for supply of goods or services 2. person registered under Composition Scheme u/s 10 | Any person other than a body corporate | A registered person, located in the taxable territory |
| Services provided by way of renting of a motor vehicle | Any person other than a body corporate, who opts to pay tax at the rate of 5% and he is eligible to claim ITC | Any body corporate located in the taxable territory |
| Services of lending of securities under Securities Lending Scheme, 1997 of the Securities and Exchange Board of India | Lender (person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf, with an approved intermediary for the purpose of lending under the Scheme of SEBI) | Borrower (a person who borrows the securities under the Scheme through an approved intermediary of SEBI) |
Is registration mandatory under RCM Cases?
- A person who is required to pay tax under RCM has to get compulsorily registered under GST
- The threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category) is not applicable for cases covered under RCM.
Can a supplier avail ITC on GST paid under RCM?
A supplier cannot take ITC of GST paid on goods or services used to make supplies on which recipient is liable to pay tax.
What is the Time of Supply for RCM cases?
1.The Time of supply is the point when the supply is liable to GST.
2. In reverse charge, recipient is liable to pay GST. Therefore, time of supply for supplies under reverse charge is different from the supplies which are under forward charge.
3. In case of supply of goods, time of supply is earliest of
i. date of receipt of goods; or
ii. date of payment as per books of account or date of debit in bank account, whichever is earlier; or
iii. the date immediately following 30 days from the date of issue of invoice
4. For instance,
i. Date of receipt of goods – 15th June 2019
ii. Date of invoice 1st July 2019
iii. Date of entry in books of receiver 18th June 2019
iv. Time of supply of service, in this case, will be 15th June 2019
5. In case of supply of services, time of supply is earliest of
i. date of payment as per books of account or date of debit in bank account, whichever is earlier; or
ii. the date immediately following sixty days from the date of issue of invoice or similar other document.
6. For instance,
i. Date of payment – 15th July 2019
ii. Date immediately after 60 days from the date of issue of invoice (Suppose the date of invoice is 15th May 2019, then 60 days from this date will be 14th July 2019)
iii. Date of entry in books of receiver 20th July 2019
iv. Time of supply of service, in this case, will be 14th July 2019
What compliances are required to be followed in respect of supplies under RCM?
- 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.
- This also needs to be mentioned in receipt voucher as well as refund voucher. (if tax is payable under RCM)
- Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge
- Any amount payable under RCM shall be paid by debiting the electronic cash ledger.
- Reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.
- Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.
- Advance paid for reverse charge supplies is also leviable under GST. The person making advance payment has to pay tax on reverse charge basis.
