The reverse charge under GST is a mechanism where the GST is paid by the receiver of the goods and services. Normally, the supplier pays the tax but in GST reverse charge, the same is paid by the recipient. In a nutshell, it can be said that the charge-ability gets reversed in reverse charge under GST. In this blog, we shall discuss the GST reverse charge in-depth. Also, if the reverse charge is applicable under GST and if yes, then when.
Goods and Service Tax, popularly known as GST, is the new tax regime in India that has replaced various indirect taxes in India. GST was introduced to remove the complexities of indirect taxes. India earlier had a tax system which was origin-based. The new GST system is a destination-based tax system. GST has replaced a total of 17 indirect taxes, including VAT, Excise Duty, Service Tax, SAD, Entry Tax, Counter Veiling Duty, etc.
The four GST bills have been enacted in the country, namely:
- Central GST (CGST)
- Integrated GST (IGST)
- Union Territory GST (UTGST)
- Bill to compensate states
Apart from the elimination of the cascading effect and double taxation, the well-designed GST had helped in the smooth functioning of the businesses.
India has organized, semi-organized, and unorganized sectors which require better monitoring for tax compliance and coverage. So, to carry out this smoothly, the government has introduced a Reverse Charge mechanism under GST in India.
Earlier, the Reverse Charge was only applicable in the Service Tax. But now it is applicable in goods as well. The Government has notified certain goods and services on which the Reverse Charge mechanism is applicable.
What is Reverse Charge under GST?
Usually, the suppliers of the goods and services are bound to pay the taxes on the supply. As said above, in the case of Reverse charge mechanism under GST, the receiver of the goods or services is bound to pay the applicable taxes.
Is reverse charge applicable in GST?
Yes, the reverse charge is applicable under GST. It is applicable when:
Supply is from an Unregistered Dealer to a Registered Dealer
The Reverse Charge under GST would be applicable when the goods are supplied from an unregistered vendor to a registered vendor under GST. This means the tax will be paid directly by the receiver of the supplied goods to Government.
For this, the registered dealer has to do a self-invoicing for the purchase made to pay GST under Reverse Charge. For inter-state purchase made, the buyer will have to pay IGST, CGST for intra-state, and SGST under RCM.
Services through an E-commerce Operator
If an e-commerce operator supplies services, then he is bound to pay the GST under Reverse Charge. For better comprehension, take an example of UrbanClap. The online service provider provides the services of beauticians, plumbers, electricians, etc. UrbanClap is liable to collect tax from the customers and pay GST instead of the registered service providers.
In case the e-commerce operator does not have any physical presence, then the person representing it is liable to pay tax. And if there is no representative, the operator will have to appoint a representative who will be held responsible to pay GST.
Supply for Goods and Services Specified by CBEC
There is a list issued by CBEC on which the Reverse Charge is applicable.
Time of Supply under Reverse Charge under GST
Time of Supply (Goods)
The time of supply for goods under Reverse Charge shall be the earliest date of the following:
- The date of receipt of goods
- The date immediately after 30 days from the date the invoice was issued by the supplier
Time of Supply (Services)
The time of supply for services under Reverse Charge shall be the earliest date of the following:
- The date of payment
- The date immediately after 60 days from the date the invoice was issued by the supplier
In case the date of supply cannot be determined, the date of entry in the books of account of the recipient will the termed as the date of supply.
Can ITC be claimed on Reverse Charge Under GST?
Input tax credit (ITC) can be claimed under GST reverse charge only if the buyer uses the goods and services bought by him for business purpose only. Also, the supplier of the goods and services that incur reverse charge cannot claim ITC.