Reverse Charge Under GST

Reverse Charge has always been a mystery box and with the rise of GST, reverse charge will become a major discussion point and will need time for all the stakeholders to gain comfort on it.

For those who are new to the concept of Reverse Charge a small flashback for them, Reverse Charge is a important concept in service tax under which the liability to pay service tax is shifted from service provider to service receiver,

Usually in Service Contracts  Service tax need to be collected by service provider from service receiver and have to deposit it with revenue authorities,

But under Reverse charge cases tax have to be deposited by service receiver directly to the revenue authorities, although service receiver depositing tax under Reverse Charge can claim Input of the tax paid by them.

Another big impact of reverse charge on business entities is the form cash flow management, as the tax to be paid by service receiver under Reverse Charge cannot be deposit by using Tax credit, it need to be deposited in cash only.

LIST OF SERVICES UNDER REVERSE CHARGE AS APPROVED BY GST COUNCIL

1. Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessee online recipient (OIDAR)

2. Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road

3. Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly

4. Services provided or agreed to be provided by an arbitral tribunal

5. Sponsorship services

6. Services provided or agreed to be provided by Government or local authority excluding, -

(1) renting of immovable property, and
(2) services specified below-

(i) 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 Government;

(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

(iii) transport of goods or passengers.

7. Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate;

8. Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business

9. Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company

10. Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India

11. Transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works

12. Radio taxi or Passenger Transport Services provided through electronic commerce operator.

Currently under service tax there were some services on which partial reverse charge mechanism was there , but under GST Regime, all the tax under reverse charge have to be paid by receiver of supply of goods or services.

Although Reverse Charge is not a new phenomenon, but major reaction is because of Section 5(4) of IGST Act'2017 as it says:  

The integrated tax in respect of 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.

Point that come clear from above section 5(4) IGST Act 2017.

GST have to paid by Registered person on receiving Taxable Supply of goods or services from unregistered person.

Now all the business entity have to update themselves whether their suppliers are Registered or Unregistered under GST regime because if they want to purchase goods or services, the receiver will have to pay GST applicable on the supply on behalf of Unregistered Supplier.

With reverse charge falling on the buyer, unregistered business will get a tough time as Registered buyers will be more interested in buying goods or services from registered suppliers under GST.

Under GST Reverse Charge mechanism, E-Commerce companies called aggregators have also been included.