An Brief Analsis of Reverse Charge Mechanism under GST
Reverse Charge Mechanism
Meaning :- As per Section 2(98) reverse charge means the liability to pay tax by the recipient of supply of goods & services or both intended 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 & Service Tax Act;
As per above definition it is clear that RCM is the mechanism in which receiver of the services or goods liable to pat tax in place of service or goods provider.
Registration :- A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category states except J & K) is not applicable to them.
ITC: A supplier cannot take ITC of GST paid on goods or services used to make supplies on which recipient is liable to pay tax. Only receiver can avail the ITC on RCM paid by him.
Time of Supply :- The time of supply is differ from the supplies which are under forward charges. In case of supply of goods , time of supply is earliest of :-
a) date of receipt of goods; or
b) date of payment as per books of account or date of debit in bank account, whichever is earlier; or
c) the date immediately following thirty days from the date of issue of invoice or similar other document.
In case of supply of services, time of supply is earliest of –
a) date of payment as per books of account or date of debit in bank account, whichever is earlier; or
b) the date immediately following sixty days from the date of issue of invoice or similar other document. Where it is not possible to determine time of supply using above methods, time of supply would be date of entry in the books of account of the recipient.
Compliances in respect of supplies under reverse charge mechanism:
1. As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.
2. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge
3. Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.
4. Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.
5. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis.
Supplies of Goods under RCM :-
1. Cashew nuts, not shelled or peeled if supplied by Agriculturist.
2. Bidi wrapper leaves (Tendu) if supplied by Agriculturist.
3. Tobacco Leaves if supplied by Agriculturist.
4. Silk Yarn if supplied by Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn
5. Raw Cotton if supplied by Agriculturist
6. Supply of lottery if supplied by Central government, State Government, union Territory & Local Authority.
7. Used vehicle, seized and confiscated goods, old and used goods, waste and scrap if supplied by Central government, State Government, union Territory & Local Authority.
Supplies of Services under RCM :-
1. Any service supplied by any person who is located in a non-taxable territory to any person other than nontaxable online recipient.
2. GTA Services supplied by Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12%.
3. Legal Services by advocate (An individual advocate including a senior advocate or firm of advocates)
4. Services supplied by an arbitral tribunal to a business entity.
5. Services provided by way of sponsorship to any body corporate or partnership firm
6. Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, -
a) renting of immovable property, and
b) 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 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.
7. Services supplied by a director of a company or a body corporate to the said company or the body corporate
8. Services supplied by an insurance agent to any person carrying on insurance business
9. Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company
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
11. Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1) Author or music composer, photograph her, artist, or the like Publisher, music company, producer or the like, located in the taxable territory (a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like
12. Supply of services by the members of Overseeing Committee to Reserve Bank of India
As per notification no 29/2018 dated 31st Dec 2018 and will be effective from 01st Jan 2019. following are the services also covered under the provision of RCM :-
A) Services provided by business facilitator (BF) to a banking company .
B) Services provided by an agent of business correspondent (BC) to business correspondent (BC).
C) Security services (services provided by way of supply of security personnel) provided to a registered person: Provided that nothing contained in this 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) 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 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.
If these service of security provided by the person other than the body corporate.
As per notification no 22/2019 dated 30th Sep 2019 following are the services also covered under the provision of RCM :-
A) Services provided by way of renting of a motor vehicle provided to a body corporate if services provided by Any person other than a body corporate, paying central tax at the rate of 2.5% on renting of motor vehicles with input tax credit only of input service in the same line of business
B) Services of lending of securities under securities lending scheme 1997 of security and exchange board of India (Sebi)
List of the notification which issued from time to time pertains with RCM
1. Notification No 13/2017 – CGST (Rate) dated 28th Jun 2017.
2. Notification No 22/2017 – CGST (Rate) dated 22nd Aug 2017.
3. Notification No 33/2017 – CGST (Rate) dated 13th Oct 2017.
4. Notification No 3/2018 – CGST (Rate) dated 25th Jan 2018.
5. Notification No 15/2018 – CGST (Rate) dated 26th July 2018.
6. Notification No 29/2018 – CGST (Rate) dated 31st Dec 2018.
7. Notification No 5/2019 – CGST (Rate) dated 29th March 2019.
8. Notification No 22/2019 – CGST (Rate) dated 30th Sep 2019.
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