What is Reverse Charge Under GST? It’s Applicability, Requirements and Time

What is Reverse Charge Under GST? It’s Applicability, Requirements and Time

India is the 3rd largest economy in the world. There are numerous of sectors working and giving their contributions to the growth of the GDP of the country. All these sectors are categorized into three parts: organized, semi-organized and unorganized sectors. Managing all sectors was catch 22 and it required lots of monitoring.

Thus, came into the scene, Reverse Charge Mechanism.

History of Reverse Charge

Though the concept of reverse charge was not new, it was also present in the in-Service tax, the previous taxation system. But at that time, it was only applied merely to the services and not to the goods.

Under the regime of Service Tax, it was the supplier who was liable to collect as well as deposit the tax to the Government.

In all this process, the collected tax was ultimately levied from the consumers only, but it was the work of the distributor/ supplier of services to collect the tax and make it deposit to the Government department.

In total there are 15 services under Service Tax system on which reverse charge was applicable. Manpower Supply, Goods Transport Agency, Insurance Agent were few of the 15 services.

Do You Know What is Reverse Charge?

Unlike the service tax system, in GST regime, the reverse charge is applicable to both, on the services as well as on the goods. According to the concept of the reverse charge, the tax on goods and services are directly paid to the government by the buyers.

Generally, the responsibility of reverse charge is rest on the buyer, except in some cases where it is borne by both the buyers as well as the seller. The concept of reverse charge in GST was introduced to increase the tax revenue along with coverage and fulfilment of compliance from both semi-organized and unorganized sectors.

Major Requirements for Reverse Charge Mechanism

Following are the requirements that a taxpayer must fulfil under the reverse charge mechanism system:

  • The first and the foremost requirement is that the recipient of any kind of goods or services must be registered under the GST regime.
  • The owner of the business must properly maintain the accurate records of the supplies. These records will attract the reverse charge in the future.
  • In a case where taxpayer paid an advance on the supplies, he must pay tax on the reverse charge basis.
  • A supplier must always mention the condition whenever the reverse charge is applied to any transaction. It must be mentioned on the invoices, receipt vouchers and refunds vouchers.

Applicability of Reverse Charge Under Various Conditions

Reverse Changer can be applicable under the following three categories. These Categories are as follows:

Category A

When Supply Takes Place from an Unregistered Dealer to Registered Dealer

Revenue charge will be applied in the condition where a dealer who is not registered under GST makes supplies of goods to the GST registered vendor. In this case, the tax incurred will be directly sent to the Government by the recipient of the goods. The supplier has no role in this case.

In such situation, a registered dealer has to do self-invoicing for the purchase made.

Category B.

When the Service is Supply from and E-Commerce Operator

In this case, an e-commerce operator provides the services, and reverse charge will be applicable to the e-commerce operator. That means the operator will be liable for paying GST.

Being an e-commerce portal, it is not necessary that an operator has a physical presence everywhere, thus, in this case, any representative of an operator will be liable to pay tax.

If the operator is not having any representative then, one must be appointed by the e-commerce operator and the same representative will be liable to pay GST.

Category C.

When Any Good or Service Falls Under CBEC Specified List

There are the lists of certain goods and services on which reverse charge is applicable.

Following is the list of Goods:

  • Cashew Nuts- Not shelled or peeled.
  • Bidi Wrapper Leaves (Tendu Leaves)
  • Silk Yarn
  • Supply of Lottery

Following is the list of Services:

  • Supply of goods to any factory registered society or a co-operative society by a Goods Transport Agency.
  • Services supply by an advocate (Senior also) in front of any court or any authority, directly or indirectly.
  • Services by an insurance agent to a person running an insurance business.
  • Services by an author, music director, photographer or an artist to the original literary, music company or a producer or like.

The Time of Supply for Goods and Services Under Reverse Charge

The date or the time when the taxes are imposed on the supplies is referred to the time of supply. In the following times, the reverse charge will be faster:

  • At the time/date of the payment, or
  • At the time/date of receipt of goods, or
  • 30 days after the date of invoice in case of goods and 60 days in case of services.

If the time of supply doesn't fall in either of the cases then the date of entry in the books shall be considered as the time of supply.

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