Reverse Charge GST

The term "reverse charge" refers to a liability in which the recipient of a supply of goods or services rather than the provider of such goods or services is responsible for making tax payments to recognized categories of collection.

The onus of making GST payments will be placed squarely on the shoulders of the recipient to accomplish the goals of broadening the scope of taxation to include a variety of unorganized sectors, exempting some categories of vendors, and taxing the importation of services (since the supplier is based outside India).

When is Reverse Charge Applicable?

The scenarios for intrastate transactions that involve a reverse charge are governed by Section 9(3), 9(4), and 9(5) of both the Central GST and State GST Acts. In addition, the scenarios for inter-state transactions that involve a reverse charge are governed by sections 5(3), 5(4), and 5(5) of the Integrated GST Act. Let's have a thorough conversation about the following potential outcomes:

The scenarios for intrastate transactions that involve a reverse charge are governed by Section 9(3), 9(4), and 9(5) of both the Central GST and State GST Acts. In addition, the scenarios for inter-state transactions that involve a reverse charge are governed by sections 5(3), 5(4), and 5(5) of the Integrated GST Act. Let's have a thorough conversation about the following potential outcomes:

A. The provision of particular goods and services that have been specified by the CBIC The Central Board of Indirect Taxes and Customs (CBIC) has published a list of goods and services for which reverse charge is applicable in accordance with the authority granted to it in Section 9(3) of the Central Goods and Services Tax Acts.

B. The sale of a product by an unregistered dealer to a dealer who is registered According to subsection 9(4) of the CGST Act, a vendor is subject to a reverse charge if they supply products to a person who is registered for the GST, but the vendor themselves are not registered for the GST. This indicates that the recipient, rather than the supplier, will be responsible for making direct payment of the GST. Under the reverse charge system, the registered buyer obligated to pay GST must perform self-invoicing for purchases. When making purchases within the same state, the purchaser is responsible for paying the CGST and SGST under the reverse charge mechanism (RCM). Additionally, in the case of purchases made between states, the IGST must be paid by the buyer. The government provides periodic updates to the list of products or services to which this provision applies and notifies those updates to the public. In real estate, the government issued a notification stating that the promoter was only allowed to purchase inside supplies from registered suppliers up to a certain percentage. If the amount of goods purchased from registered dealers is less than 80%, the promoter is responsible for paying GST at the rate of 18% on the amount of the reverse charge that is less than 80% of the total inward supply. However, the promoter must pay tax at the rate of 28% if he gets cement from a supplier who is not registered. Therefore, regardless of the results of the 80% calculation, you still need to carry out this computation. If the TDR or floor space index (FSI) was supplied on or after April 1, 2019, the promoter is responsible for paying GST on a reverse charge basis. The transfer of development rights from a landowner to a promoter is considered a supply of service for the purposes of section 7 of the CGST Act, which means that the transfer of these rights is subject to GST. This is the case even if the landowner does not engage in the regular business of land-related activities. Additionally, in the event that one developer supplies TDR to another developer, the applicable GST rate for the reverse charge transaction is 18%.

C. The provision of services via an online retailer or facilitator E-commerce operators can act as an aggregator for enterprises of any kind, allowing for the sale of items or the provision of services. However, according to Section 9(5) of the CGST Act, if a service provider uses an e-commerce operator to provide certain services, the reverse charge will apply to the e-commerce operator, and he will be responsible for paying GST. This provision states that the reverse charge will apply to the e-commerce operator. This section discusses several services, including the following:

• Commuting via a radio-taxi, a motor cab, a maxi cab, or a motorcycle for their transportation needs. Take for instance Ola and Uber.
• The provision of accommodation services in hotels, inns, guest houses, clubs, campsites, or other commercial places intended for residential or lodging purposes, with the exception of situations in which the person supplying such a service through an electronic commerce operator is required to register because their turnover is higher than the threshold limit. Take, for instance, Oyo and MakeMyTrip.com.
• Services related to housekeeping, such as plumbing and carpentry, with the exception of situations in which the person delivering such services through electronic commerce operators, are required to register owing to exceeding the threshold limit for annual sales volume. For instance, Urban Company offers the services of a variety of professionals, such as plumbers, electricians, teachers, beauticians, and so on. In this scenario, Urban Company is the one who is responsible for paying GST, and it is they who will be collecting it from customers rather than the registered service providers.

Consider another scenario in which the company operating the online store does not have a physical presence in the area subject to taxation. In such a scenario, any individual representing an online business that engages in electronic commerce will be held accountable for paying any applicable taxes. If there isn't a representative, the operator will choose one for them, and that person will be responsible for paying GST on their behalf.

Time of Supply Under RCM

A. Time of the provision in the event that products are being provided In the event that items are subject to a reverse charge, the time of supply for those goods will be the earliest of the following dates:

1. The date on which the items were received
2. The date that is immediately after a period of 30 days from the date on which the supplier initially issued an invoice

In the event that it is impossible to ascertain the time of supply, the date on which the transaction was recorded in the recipient's books of account is to be considered the time of supply.

Example: The date of delivery of the items is the 15th of May in 2021. The date of the billing is the first of June 2021. 18th of May, 2021: date of entry in the books of the recipient In this particular scenario, the 15th of May 2021 will be the time at which the service will be provided.

B. Duration of service provision in the event of services In the event of a reverse charge, the time of supply is to be determined based on the date that is the earliest of the following: The day on which payment is made The date immediately follows sixty calendar days from the date on which the provider issued the invoice. In the event that it is impossible to ascertain the time of supply, the date on which the transaction was recorded in the recipient's books of account is to be considered the time of supply.

Example: The date of payment will be the 15th of July in 2021. The date which is immediately following sixty days from the date on which the invoice was issued (Suppose the date of the invoice is 15th May 2021, then 60 days from this date will be 14th July 2021) 18th of July, 2021: date of entry in the books of the recipient In this particular scenario, the 14th of July 2021 will be the time the service will be provided.

Registration Rules Under RCM

According to Section 24 of the CGST Act, 2017, a person who is obligated to pay GST in accordance with the reverse charge mechanism is required to register for GST on a mandatory basis. However, depending on the circumstance, they are exempt from the minimum and maximum threshold limitations of Rs. 20 lakh or Rs. 40 lakh.

Who Should Pay GST Under RCM?

Under RCM, the GST should be paid by the recipient of the goods or services. However, according to the law governing GST, the person who supplies the products must indicate on the tax invoice whether or not RCM tax is payable. When making payments for GST in accordance with RCM, the following considerations should be borne in mind:

1. For the recipient of goods or services to be eligible for an ITC on the tax amount paid under RCM, the goods or services in question must be used in the recipient's business or in furthering the recipient's business.
2. When discharging liability under RCM, a composition dealer should pay tax at the normal rates, not the composition rates, and should not pay tax at the composition rates. In addition, they cannot claim any input tax credit for the tax they have already paid.
3. The GST compensation cess may be applied to the tax that is owed or paid in accordance with the RCM.

Input Tax Credit (ITC) Under RCM

A supplier cannot claim an ITC for any amount of GST paid through the RCM. Only if the received goods or services are utilized or will be used for business purposes can the recipient claim an input tax credit (ITC) for the amount of GST that was paid under RCM on the receipt of those goods or services. Only cash should be given to the receiver because they are not allowed to utilize their ITC to pay the output GST on the products or services that are subject to the reverse charge.

What is Self Invoicing?

When purchasing products or services from an unregistered source, you are required to self-invoice because this type of transaction falls under the purview of the reverse charge. This is because your supplier cannot send an invoice to you that is compatible with GST; as a result, you are now responsible for paying taxes on their behalf. Therefore, it is essential to self-invoice in this particular scenario. Additionally, section 31(3)(g) mandates that a recipient who is required to pay tax in accordance with the provisions of section 9(3) or 9(4) must provide a payment voucher at the time that they make a payment to the supplier.