Reverse Charge Mechanism (RCM) under GST

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Under Reverse Charge Mechanism (RCM) the recipient of the goods and/or services is liable to pay GST instead of the supplier of the goods and/or services.

Updates

  • 6th Aug 2018: Reverse Charge Mechanism (in case of supplies made by unregistered persons to registered persons) deferred till 30th Sept 2019. Earlier, this provision was applicable from 1st Oct 2018.
  1. What is Reverse Charge?
  2. When is Reverse Charge Applicable?
  3. Time of Supply under Reverse Charge
  4. What is Self-Invoicing?
  5. Frequently Asked Questions(FAQ)

1. What is Reverse Charge?

Usually, the supplier of goods or services pays the tax on supply of goods/services. Under Reverse Charge (RCM), the receiver is liable to pay the tax.

2. When is Reverse Charge Applicable?

A. Supply from an Unregistered dealer to a Registered dealer

When unregistered person supplies goods to a person who is registered under GST, then Reverse Charge would apply. i.e. GST will have to be paid directly by the receiver of the supply to the Government instead of the supplier.

The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.

For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the purchaser.

B. Services through an e-commerce operator

When e-commerce operator supplies services, The reverse charge will be applicable to the e-commerce operator. He has to pay GST.

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.

C. Supply of certain goods and services specified by CBEC

CBEC has issued a list of goods and a list of services on which reverse charge is applicable.

3. Time of Supply under Reverse Charge

A. Time Of Supply in case of Goods

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • the date of receipt of goods
  • the date of payment*
  • the date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

*This point is no more applicable based this Notification No. 66/2017 – Central Tax issued on 15.11.2017

Example:

  1. Date of receipt of goods 15th May 2018
  2. Date of invoice 1st June 2018
  3. Date of entry in books of receiver 18th May 2018

The Time of supply of service, in this case, will be 15th May 2018

B. Time Of Supply in case of Services

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

Example:

  1. Date of payment 15th July 2018
  2. Date immediately after 60 days from the date of issue of invoice (Suppose the date of the invoice is 15th May 2018, then 60 days from this date will be 14th July 2018)
  3. Date of entry in books of receiver 18th July 2018

The Time of supply of service, in this case, will be 14th July 2018

4. What is Self Invoicing?

You need to raise Self-invoicing when you purchased goods/services from an unregistered supplier AND such purchase of goods or services falls under reverse charge.

because the supplier (being an unregistered person) cannot issue a GST-compliant invoice, so the receiver is liable to pay taxes on their behalf.

Hence, self-invoicing, in this case, becomes necessary.

5. Frequently Asked Questions 

1. What happens if the receiver of goods and/or services are required to pay tax under Reverse Charge but is not a registered dealer?

All taxpayers required to pay tax under reverse charge have to register for GST and the threshold of Rs 20 Lakhs is not applicable to them.
 

2. Is Input Tax Credit allowed under Reverse Charge?

Tax paid on reverse charge basis will be available for an input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit.
 

3. What if an Input Service Distributor receives supplies liable to Reverse Charge?

An ISD cannot make purchases liable to Reverse Charge. If the ISD wants to procure such supplies and take the Reverse Charge paid as credit, the ISD should register as a Normal Taxpayer.

Disclaimer: Due care has been taken to draft this write-up and is intended to express the Authors understanding and to start an academic discussion on the subject discussed in above write-up. it should not be considered as professional advice. Readers are advised to refer to relevant provisions of law before applying any of the above-mentioned views. The author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the content of this write-up.

Disclaimer: Due care has been taken to draft this write-up and is intended to express the Authors understanding and to start an academic discussion on the subject discussed in above write-up. it should not be considered as professional advice. Readers are advised to refer to relevant provisions of law before applying any of the above-mentioned views. The author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the content of this write-up.

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