What is Reverse Charge Mechanism?
Under Reverse Charge mechanism is the beneficiary of the good and services is liable to pay the tax instead of the provider of the goods or services in respect of specified categories of supplies.
Under the normal taxation regime, supplier collects the tax from the buyer and deposits the same tax after adjusting the output tax liability with the input tax credit available. But under reverse charge mechanism, liability to pay tax shifts from supplier to recipient.
Where the Reverse Charge will Apply?
A. Supply from an Unregistered dealer to a Registered dealer
If Unregistered dealer is selling to registered dealer, in that case, the registered dealer is required to pay GST on reverse charge basis for that supply
Reverse charge is applicable under GST on services
CBEC has notified a list of 12 services on which tax shall be paid by the Beneficiary that is
Non-resident service provider
Goods Transport Agencies
Legal service by an Advocate/ Firm of Advocates
Specified Services provided by Government or Local Authority to Business entity
Services of a director to a company
Recovery Agent of Bank/FI/ NBFC
Transportation Services on Import
Permitting use of Copyright
Radio Taxi services to E-commerce aggregator (eg: Ola, Uber, etc.)
B. Services through an e-commerce operator
If Service supplied by an Electronic Commerce will attract reverse charge and they will be liable to pay GST.
For example, UrbanClap supplies services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers.
C. Supply of certain goods and services specified by CBEC
All other categories of supplies will be notified by Central or State government that will fall under the reverse charge and issued a list of goods and services on which reverse charge is applicable.
3. Time of Supply
A. Time Of Supply in case of Goods
In case of supplying reverse charge, the time of supply shall be the earliest of the following dates:
the date of receipt of goods
the date of payment as entered in the books of account of the beneficiary.
the date immediately after 30 days from the date of issue of an invoice or any other document 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 beneficiary
Date of receipt of goods – 16th May 2017
Date of Payment – 16th July 2017
Date of Invoice – 1st June 2017
Date of Entry in books by recipient – 18th May 2017
B. Time Of Supply in case of Services
In case of supplying reverse charge for services, then the time of supply shall be the earliest of the following dates:
The date of payment after sixty 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 beneficiary.
Date of Payment – 18th August 2017
Date of Invoice – 1st September 2017
Date of Entry in books by recipient – 19th August 2017
4. What is Self Invoicing?
Self-invoicing is to be done when you have purchased from an unregistered supplier AND such purchase of goods or services falls under reverse charge.