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All About Reverse Charge Mechanism under GST

CA. Ankit Chandrakar 
on 01 February 2021

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Meaning of Reverse Charge

As per Section 2(98) of the Act, "reverse charge" means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.

Applicability of RCM

  • Notified Goods and Services (A)
  • Supplies from Unregistered Person (B)
  • Import of Goods and Services (C)

Specific goods or services notified by Government under RCM: Section 9(3) of the CGST Act1 and Section 5(3) of the IGST Act – "The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both 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."

(i) Supply of Goods notified for RCM under Section 9(3) of the CGST Act - Notification No- 04/2017-Central Tax (Rate) & Notification No-04/2017-Integrated Tax (Rate) dated 28-06-2017 – RCM ON SUPPLY OF GOODS.

All About Reverse Charge Mechanism under GST

S. No.

Description of Goods

Supplier of Goods


Recipient of Goods Liable to Pay Tax

1

Cashew nuts, not shelled or peeled

Agriculturist

Any registered person

2

Bidi wrapper leaves (tendu)

Agriculturist

Any registered person

3

Tobacco leaves

Agriculturist

Any registered person

4

Silk yarn

Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn.

Any registered person

4A

Raw cotton [Inserted vide Notification No- 43/2017 Central Tax (Rate) & Notification No- 45/2017-Integrated Tax (Rate) dated 14-11-2017 w.e.f. 15.11.2017 ]

Agriculturist

Any registered person

5

Supply of lottery

State Government, Union Territory or any local authority

Lottery 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 provisions of sub-section (1) of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998).

6

Used vehicles; seized and confiscated goods, old and used goods, waste and scrap. [Inserted vide Notification No -36/2017 Central Tax (Rate) & Notification No. 37/2017-Integrated Tax (Rate) dated 13-10-2017]

Central Government, State Government, Union Territory or any local authority

Any registered person

7

Priority Sector Lending Certificate [Inserted vide Notification No -11/2018 Central Tax (Rate) & Notification No- 12/2018-Integrated Tax (Rate), both dated 28-05-2018 ]

Any registered person

Any registered person

(ii) Supply of Services notified for RCM under Section 9(3) of the CGST Act - Notification No- 13/2017 Central Tax (Rate) dated 28-06-2017 – RCM ON SUPPLY OF SERVICES.

S. No.

Description of Services

Supplier of Services

Recipient of Services

1

Supply of Services by a Goods Transport Agency (GTA) [who has not paid central tax @ 6%] in respect of transportation of goods by road to –

(a) any factory registered under or governed by the Factories Act, 1948; or

(b) any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or

(c) any co-operative society established by or under any law; or

(d) any person registered under CGST/IGST/SGST/ or UTGST Act; or

(e) any body corporate established, by or under any law; or

(f) any partnership firm whether registered or not under any law including association of persons; or

(g) any casual taxable person; located in the taxable territory.

[Provided that 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) a Department or Establishment of the Central Government or State Government or Union territory; or

(b) local authority; or

(c) Governmental agencies,

which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under Section 51 and not for making a taxable supply of goods or services.] - Inserted vide Notification No- 29/2018- Central Tax (Rate) dated 31-12-2018-w.e.f. 1.01.2019

Goods Transport Agency (GTA)

(a) Any factory registered under or governed by the Factories Act, 1948; or

(b) Any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or

(c) Any co-operative society established by or under any law;

(d) Any person registered under CGST/IGST/SGST/UTGST Act; or

(e) Any body corporate established, by or under any law; or

(f) Any partnership firm whether registered or not under any law including association of persons; or

(g) Any 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.

Explanation. - "legal service" means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.]

An individual Advocate including a Senior Advocate or firm of Advocates

Any business entity located in the taxable territory.

3

Services supplied by an Arbitral Tribunal to a business entity.

An Arbitral Tribunal

Any business entity located in the taxable territory.

4

Services provided by way of sponsorship to any body corporate or partnership firm.

Any person

Any body corporate or partnership firm located in the taxable territory.

5

Services supplied by the Central Government, State Government, Union territory or local

authority to a business entity excluding the following:

(A) renting of immovable property, and

(B) services specified below: -

(i) services by the Department of posts by way of speed post, life insurance, express parcel post and agency services provided to a person other than Central Government, State Government or

Union territory or local authority;

(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.

Central Government, State Government, Union territory or Local Authority

Any business entity located in the taxable territory.

5A.

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 Central Goods and Services Tax Act, 2017 - [Inserted vide Notification No- 03/2018-Central Tax (Rate), dated 25-01-2018 ]

Central Government, State Government, Union territory or Local Authority.

Any person registered under the Central Goods and Services Tax Act, 2017]

5B.

Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter – [Inserted vide Notification No-05/2019-Central Tax (Rate), dated 29-03-2019- w.e.f. 1.04.2019 ]

Any person

Promoter

5C

Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter – [Inserted vide Notification No-05/2019-Central Tax (Rate), dated 29-03-2019 - w.e.f. 1.04.2019 ]

Any person

Promoter]

6

Services supplied by a director of a company or a body corporate to the said company or the body corporate.

A director of a company or a body corporate

A company or a body corporate located in the taxable territory

7

Services supplied by an insurance agent to person carrying on insurance business.

An Insurance agent

Any person carrying on insurance business, located in the taxable territory.

8

Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company.

A recovery agent

Banking company or financial institution or a non-banking financial company, located in the taxable territory.

9

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 under clause (a) of sub-section (1) of Section 13 of the Copyright Act, 1957 relating to original dramatic, musical or artistic works to a music company, producer or the like. – [Substituted vide Notification No- 22/2019-Central Tax (Rate) dated 30-09-2019- w.e.f. 1.10.2019].

Music composer, photographer, artist, or the like.

Music company, producer or the like, located in the taxable territory.]

9A

Supply of services by an author by way of 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 works to a publisher. – [Inserted vide Notification No- 22/2019-Central Tax (Rate) dated 30-09-2019 - w.e.f. 1.10.2019 ]

Author

Publisher located in the taxable territory: -

Provided that nothing contained in this entry shall apply where: -

(i) the author has taken registration under the Central Goods and Services Tax Act,2017 (12 of 2017), and filed a declaration , in form at Annexure I, within the time limit prescribed therein, with the jurisdictional CGST or SGST commissioner, as the case may be, that he exercises the option to pay central tax on the service specified in column (2), under forward charge in accordance with Section 9 (1) of the Central Goods and Service Tax Act, 2017 under forward charge, and to comply with all the provisions of Central Goods and Service Tax Act, 2017 (12 of 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 option;

(ii) the author makes a declaration, as prescribed in Annexure II on the invoice issued by him in FORM GST Inv-I to the publisher.]

10

Supply of services by the members of Overseeing Committee to Reserve Bank of India. – [Inserted vide Notification No- 33/2017- Central Tax (Rate) dated 13-10-2017]

Members of Overseeing Committee constituted by the Reserve Bank of India.

Reserve Bank of India]

11

Services supplied by individual direct selling agents (DSAs) other than a body corporate partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs) – [Inserted vide Notification No- 15/2018- Central Tax (Rate) dated 26-07-2018– w.e.f. 27.07.2018]

Individual direct selling agents (DSAs) other than a body corporate, partnership or limited liability partnership firm.

A banking company or a non-banking financial company, located in the taxable territory.]

12

Services provided by business facilitator (BF) to a banking company. – [Inserted vide Notification No. 29/2018 – Central Tax (Rate) dated 31-12-2018- w.e.f.1.01.2019]

Business facilitator (BF)

A banking company, located in the taxable territory.]

13

Services provided by an agent of business correspondent (BC) to

business correspondent (BC). – [Inserted vide Notification No. 29/2018 – Central Tax (Rate) dated 31-12-2018- w.e.f.1.01.2019]

An agent of business correspondent

(BC).

A business correspondent, located in the taxable territory.

14

Security services (services provided by way of supply of security personnel) provided to a registered person:

Provided that nothing contained in the entry shall apply to, -

(i)(a) a Department or Establishment of the Central Government or State Government or Union territory; or

(b) local authority; or

(c) Government agencies;

which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under Section 51 of the said Act and not for making a taxable supply of goods or services; or

(ii) a registered person paying tax under Section 10 of the said Act. – [Inserted vide Notification No. 29/2018 – Central Tax (Rate) dated 31-12-2018- w.e.f. 1.01.2019]

Any person other than a body corporate.

A registered person, located in the "taxable territory."

15

Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate – [Inserted vide Notification No 22/2019-Central Tax (Rate) dated 30-09-2019, amended vide Notification No - 29/2019-Central Tax (Rate) dated 31-12-2019.]

Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6 per cent. to the service recipient.

Any body corporate located in the taxable territory.]

16

Services of lending of securities under Securities Lending Scheme, 1997 ("Scheme") of Securities and Exchange Board of India ("SEBI"), as amended – [Inserted vide Notification No. 22/2019- Central Tax (Rate) dated 30-09-2019 – w.e.f. 1.10.2019 ]

Lender i.e. a 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 i.e. a person who borrows the securities under the Scheme through an approved intermediary of SEBI).]

Additional Supply of Services notified for RCM under Section 5(3) of IGST Act – [Notification No-10/2017-Integrated Tax (Rate) dated 28-06-2017]

S.No.

Description of Services

Supplier of Services

Recipient of Services

1

Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.

Any person located in a non-taxable territory.

Any person located in the taxable territory other than non-taxable online recipient.

2

Services supplied by a person located in non-taxable territory 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 a non-taxable territory.

Importer, as defined in Section 2(26) of the Customs Act, 1962, located in the taxable territory.

Supplies from Unregistered Person received by registered recipient

Section 9(4) of the CGST Act & Section 5(4) of the IGST Act - The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, 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 such supply of goods or services or both." – [Notification No. 02/2019-Central Tax dated 29-01-2019 from 1-02- 2019]

Specified Categories of Goods and/or Services and specified class of registered persons as notified by Government under section 9(4) on which tax shall be paid by recipient of such goods or services or both, in case of supply by unregistered supplier

S.NO.

Description of Goods and Services

Recipient of Goods and Services

1

Supply of such goods and services or both [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI)] which constitute the shortfall from the minimum value of goods or services or both required to be purchased by a promoter for construction of project, in a financial year (or part of the financial year till the date of issuance of completion certificate or first occupation, whichever is earlier) as prescribed in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017, at items (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, published in Gazette of India vide G.S.R. No. 690, dated 28th June, 2017, as amended.

Promoter

2

Cement falling in Chapter Heading 2523 in the First Schedule to the Customs Tariff Act,1975 (51 of 1975) – [Notification No- 24/2019- Central Tax (Rate) dated 30-09-2019- w.e.f. 1.10.2019]

Promoter

3

Capital goods falling under any Chapter in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) supplied to a promoter for construction of a project on which tax is payable or paid at the rate prescribed for items (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017, published in Gazette of India vide G.S.R. No.690, dated 28th June, 2017, as amended.

Promoter

Registration For RCM

As per Section 24(iii) of the CGST Act, persons who are required to pay tax under reverse charge shall be required to be registered under GST. There is no threshold limit for registration for a recipient of RCM supplies.

Time of Supply under Reverse Charge Mechanism

In case of Goods

As per Section 12(3) of the CGST Act, in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely:

  1. the date of the receipt of goods; or
  2. the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  3. the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.

In case of Services

As per Section 13(3) of the CGST Act, in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:

  • the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  • the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
 

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply.

Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.

Documents required to be issued in respect of supplies liable to tax under reverse charge mechanism [Section 31(3)(f) & (g)]

  1. If recipient is liable to pay tax on reverse charge basis in terms of Section 9(3) or 9(4), or the corresponding provisions of the IGST Act, 2017, he shall issue an invoice (self –invoice) if he receives the supply of goods and/or services from an unregistered supplier.
  1. All cases of inward supplies on which tax is payable on reverse charge basis, require the recipient of supply to issue a payment voucher, at the time of making payment to the supplier, containing all the applicable particulars specified in Rule 52 of the CGST Rules, 2017.

IMPORTANT POINTS TO NOTE

  1. All recipients required to pay tax on goods or services or both under RCM are mandatorily required to obtain GST Registration and the threshold of ` 40 Lakhs/ 20 Lakhs is not applicable to them. However, registration need not be obtained by the recipient if such recipient supplies only services covered under Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 .
  1. The payment of GST under reverse charge shall be made by the recipient by debit of electronic cash ledger only [AND NOT BY USING ITC].
  1. The recipient of supplies under RCM from an unregistered supplier can avail input tax credit on basis of self-invoice made by him.
  1. A person exclusively engaged in supplies which are under RCM is NOT required to register under GST vide Notification No. 5/2017-Central Tax, dated 19-6-2017.
  1. The condition of payment of value of service within 180 days of the date of supplier invoice is not applicable on supplies liable to tax under RCM. Hence, there would be no interest liability on account of the same [As per the proviso of Section 16(2) of the CGST Act, 2017].
  1. As per Rule 36(1) (b), the input tax credit shall be availed by a registered person on an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to payment of tax. In case the supplier is unregistered then the recipient is liable issue a tax invoice under reverse charge towards such receipts and claim ITC against such invoice. However, if the supplier is registered, then he shall issue a tax invoice specifying the supply taxable under reverse charge.
  1. The scheme of partial reverse charge or joint charge, previously prevailing under the Service tax laws does not continue in GST.
  1. The recipient paying tax on reverse charge basis on account of effecting inward supplies from unregistered persons, should issue an invoice in respect of the goods or services received, at the time of receipt of such goods or services.

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