(RCM) Reverse Charge Under GST, Reverse Charge Mechanism Under GST

(RCM) Reverse Charge Under GST, Reverse Charge Mechanism Under GST  Before we should understand what is Reverse Charge Mechanism Under GST we should understand what is Reverse Charge Mechanism Under normal supplies, where supplier collects the tax from the recipient and deposits the same after adjusting his output tax liability with input tax credits, but under the reverse charge mechanism liability to pay tax on a particular supply is on the recipient of supply. This concept of Reverse charge, is common to many countries where it is applicable on imports of services and intangible properties. Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed and because of that it is called reverse charge. The purpose of this charge is to increase tax compliance and tax revenues. Earlier, the government was unable to collect service tax from various unorganized sectors like goods transport. Compliances and tax collections will therefore be increased through reverse charge mechanism. The concept of reverse charge mechanism was also present in service tax. In GST regime, reverse charge is applicable for both services as well as goods. In the normal course of business, the person supplying goods or services is required to deposit GST. But by virtue of Sec 9(4) & 9(5) of the CGST Act, 2017 and in terms of Sec 5(3) & 5(4) of the IGST Act, 2017, the liability to deposit GST has been vested on recipient of goods & services. (RCM) Reverse Charge Under GST, Reverse Charge Mechanism Under GST: As per Section 2 (98 ) of CGST Act 2017 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

Under Reverse charge liability to pay tax is on the recipient of goods/ services instead of the supplier. Reverse charge may be applicable for both services as well as goods. GST REGISTRATION UNDER RCM All persons who are required to pay tax under reverse charge have to register for GST, irrespective of the threshold [Threshold:- Turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs for North Eastern and hill states)]

Time of supply for goods under reverse charge:

In case of reverse charge, the time of supply shall be the earliest of the following dates (a) the date of receipt of goods OR (b) the date of payment OR (c) the date immediately after 31st day (in case of goods, and 61st day in case of services) from the date of issue of invoice by supplier If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient. For clause (b)- the date of payment shall be earlier of- 1. The date on which the recipient entered the payment in his books OR 2. The date on which the payment is debited from his bank account Example: 1. Date of receipt of goods 10th May 2018 2. Date of payment 15th July 2018 3. Date of invoice 1st July 2018 4. Date of entry in books of receiver 18th May 2018 Time of supply of goods 10th May 2018 If for some reason time of supply could not be determined supply under (1), (2) or (3) then it would be 18th May 2018 i.e., date of entry

Time of supply for services under reverse charge:

In case of reverse charge, the time of supply shall be the earliest of the following dates (a) The date of payment OR (b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods) If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service. For clause (a)- the date of payment shall be earlier of- 1. The date on which the recipient entered the payment in his books OR 2. The date on which the payment is debited from his bank account Example for reverse charge: 1. Date of payment 15th July 2018 2. Date of invoice 1st July 2018 3. Date of entry in books of receiver 18th July 2018 Time of supply of service 15th July 2018 If for some reason time of supply could not be determined supply under (a) or (b) then it would be 18th July 2018 i.e., date of entry in books. When supplier is located outside India In case of associated enterprises, where the supplier of service is located outside India, the time of supply shall be- 1. the date of entry in the books of account of the receiver OR 2. the date of payment -whichever is earlier Example for associated enterprises: XYZ Ltd. in India has setup a subisidiary CAB in Singapore. CAB provided services to XYZ Ltd. for which ABC paid 1,00,000 SGD on 5th July 2017. It recorded on 8th July 2017. XYZ will pay reverse charge as CAB is located outside India. Time of supply will be 5th July 2017. Example to understand reverse charge Let us assume that supply of cement will attract Reverse Charge. Now a supplier dispatched the goods on 1st August, received by the buyer on August 5, payment was made on 25th July (Advance Payment) and invoice raised by supplier on 1st August. Time of Supply under reverse charge would be 25th July and must be included in the return for July period though the goods are received in August.

Treatment of Reverse Charge under GST:

List of Goods on which Reverse Charge is Applicable Under GST:

For the first time under GST, reverse charge is applicable on goods. The Central Government, vide below mentioned notification has specified the supply of following goods under reverse charge. Following goods are notified u/s 9(3) of CGST Act & u/s 5(3) of IGST Act,2017 Notification No. 4/2017-Central Tax (Rate) Dated 28^th June 2017 , Notification No. 36/2017-Central Tax (Rate) Dated 13^th October 2017 and Notification No. 43/2017-Central Tax (Rate) Dated 14^th November 2017 Notification No. 11/2018- Central Tax (Rate) Dated 28^th May 2018

S.No.	HSN Code of Goods	Description	Supplier	Receiver	Notification Number	Applicability
1	0801	Cashew nuts, not shelled or peeled	Agriculturist	Any registered person	Notification 4/2017- Central Tax (Rate)	01.07.2017
2	14049010	Bidi wrapper leaves (tendu)	Agriculturist	Any registered person	Notification 4/2017- Central Tax (Rate)	01.07.2017
3	2401	Tobacco Leaves	Agriculturist	Any registered person	Notification 4/2017- Central Tax (Rate)	01.07.2017
4	5004 to 5006	Silk Yarn	Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn	Any registered person	Notification 4/2017- Central Tax (Rate)	01.07.2017
4A	5201	Raw Cotton	Agriculturist	Any registered person	Notification 43/2017-Central Tax (Rate)	15.11.2017
5	-NA-	Supply of lottery	State Government, Union Territory or any local authority	Lottery Distributor of Selling Agent	Notification 4/2017- Central Tax (Rate)	01.07.2017
6	Any Chapter	Used vehicles, seized and confiscation goods, old and used goods, waste and scrap	Central Government, State Government, Union territory or a local authority	Any registered person	Notification 36/2017-Central Tax (Rate)	13.10.2027
7	Any Chapter	Priority Sector Lending Certificate	Any registered person	Any registered person	Notification 11/2018 – Central Tax (Rate)	28.05.2018
8	72, 73, 74, 75, 76, 77, 78, 79, 80 or 81	Metal Scrap	Any Unregistered Person	Any Registered Person	Notification 06/2024 – Central Tax (Rate)	10.10.2024

List of Services on which Reverse Charge is Applicable Under GST:

Following Services are notified under reverse charge mechanism of CGST Act and IGST Act, 2017

Entry. No.	Description	Supplier	Receiver	Notification Number	Applicability
1	GTA Services – Transportation of Goods by Road	GTA	i)   Any Factory ii)  Any Society iii) Any Co-operative Society iv) Any Registered Person under GST v)  Any body corporate, vi) Any partnership firm vii) Any casual taxable person	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
2	Legal Services	An individual advocate including a senior advocate or firm of advocates	Any business entity located in the taxable territory	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
3	Arbitral Tribunal Services	Arbitral Tribunal	Any business entity located in the taxable territory	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
4	Sponsorship Services	Any person other than a body corporate	Any body corporate or partnership firm	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
5	Services by Government to Business Entity excluding: i)   Renting of immovable property ii)  Services by the Department of Posts iii) Services in relation to aircraft or vessel inside or outside precincts of a port or an airport Transportation of goods or passengers	Central Government, State Government, Union territory or local authority	Any business entity located in the taxable territory	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
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 GST	Central Government, State Government, Union territory or local authority	Any Registered Person	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
5AA	Service by the way of renting of residential dwelling to a registered person	Any Person	Any registered person under CGST Act 2017	Notification No 5/2022 – CT (Rate) dated 13.7.2022	18.07.2022
5AB	Service by way of renting of any immovable property other than residential dwelling	Any Unregistered Person	Any Registered person other than a  person who has opted to pay tax under composition levy	Notification No 9/2024 – CT (Rate) dated 08.10.2024	10.10.2024
5B	Service supplied by any person by way of transfer of development right or Floor space Index (FSI) including additional FSI for a construction of project by a promoter.	Any person	Promoter	Notification No. 05/2019-Central Tax (Rate) dated 29.03.2019	01.04.2019
5C	Long term lease of land (30 year 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 project by promoter	Any person	Promoter	Notification No. 05/2019-Central Tax (Rate) dated 29.03.2019	01.04.2019
6	Services supplied by a director of a company or a body corporate to the said company or the body corporate	Director of a company or body corporate	Company or body corporate located in the taxable territory	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
7	Services supplied by an insurance agent to any person carrying on insurance business	Insurance Agent	Any person carrying on insurance business, located in the taxable territory.	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
8	Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company.	Recovery Agent	A banking company or a financial institution or a non-banking financial company, located in the taxable territory.	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
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.	Music composer, photographer, artist, or the like	Music company, producer or the like, located in the taxable territory.	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
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.	Author	Publisher	Notification No 22/2019 dated 30.09.2019	01.10.2019
10	Supply of services by the members of Overseeing Committee to Reserve Bank of India	Members of Overseeing Committee constituted by the Reserve Bank of India	Reserve Bank of India	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
10	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 Non-taxable territory	Importer	Entry No.10 of notification no. 10/2017 – Integrated tax (rate) dated 28th June 2017.	01.07.2017
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)	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	Notification 13/2017-Central Tax (Rate) dated 28.06.2017	01.07.2017
12	Services provided by business facilitator (BF) to a banking company	Business Facilitator	A banking company, located in the taxable territory	Notification 29/2018- Central Tax (Rate) dated 31.12.2018	01.01.2019
13	Services provided by an agent of business correspondent (BC) to business correspondent	Business Correspondent	A business correspondent, located in the taxable territory	Notification 29/2018- Central Tax (Rate) dated 31.12.2018	01.01.2019
14	Security services (services provided by way of supply of security personnel) provided to a registered person with certain exceptions	Any person other than a body corporate	A registered person, located in the taxable territory	Notification 29/2018- Central Tax (Rate) dated 31.12.2018	01.01.2019
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.	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% to the service recipient.	Any body corporate located in the taxable territory”.	Notification 29/2019- Central Tax (Rate) dated 31.12.2019	31.12.2019
16	Services of lending securities under Securities Lending scheme, 1997 (Scheme). Securities and Exchange Board of India (SEBI), as amended.	Lender	Borrower	Notification 22/2019-Central Tax (Rate) dated 30.09.2019	01.10.2019
1	Import of Services	Services by any person who is located in Non- taxable territory	Any person located in taxable territory other than non-taxable online recipient	Entry No.1 of notification no. 10/2017 – Integrated tax (rate) dated 28th June 2017.	01.07.2017

List of Services on which Reverse Charge is Applicable Under GST in Excel

Input Tax Credit under GST for RCM:

1.) Tax paid under reverse charge mechanism is available as ITC to the registered recipient person. 2.) The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services. 3.) The only condition is that the goods and services are used or will be used for business or furtherance of business. 4.) ITC cannot be used to pay output tax, which means that payment mode is only through cash under reverse charge.

Reverse Charge Entries Under GST:

Entry for Purchase of Goods / Services Availed:

1.) If purchases/services are availed within the state (Intra State) 

Purchase / Expense A/c. ---------10,000

Input CGST A/c. ------------------- 900

Input SGST A/c.  ------------------- 900

To Creditors A/c. or Cash/Bank Ac ------ 10,000

To CGST A/c Payable -----------------------900

To SGST A/c Payable -----------------------900

2.) If purchases / services are availed from other state (Inter State) 

Purchase / Expense A/c. ---------10,000

Input IGST A/c. -------------------- 1,800

To Creditors A/c. or Cash/Bank A/c. ------ 10,000

To IGST A/c Payable -----------------------1,800

3.) If purchases / services are availed from other Country (Import)

Purchase / Expense A/c. ---------10,000

Input IGST A/c. -------------------- 1,800

To Creditors A/c. or Cash/Bank A/c. ------ 10,000

To IGST A/c Payable -----------------------1,800

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