Aditya Birla Sun Life Insurance Company Limited

Reverse Charge GST

Icon-Calender May 20, 2025
Icon-Clock10 mins read
Rated by reader
  • Icon-Index
    Table of Contents

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, 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.

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.

Budget 2025 Update: Input Tax Credit (ITC) Distribution for RCM

In the Budget 2025, a significant change has been introduced regarding the distribution of Input Tax Credit (ITC) in relation to Reverse Charge Mechanism (RCM) transactions. Specifically, provisions have been made to allow Input Service Distributors (ISDs) to distribute ITC for inter-state supplies where tax is paid under the reverse charge.

This change, effective from April 1, 2025, will streamline the process for businesses with multiple locations or branches. Previously, the distribution of ITC for RCM transactions could be complex, particularly in cases involving inter-state supplies. Now, ISDs will be able to efficiently allocate ITC related to these transactions, simplifying compliance and reducing administrative burdens.

This update is particularly relevant for businesses that frequently engage in RCM transactions and have multiple locations. It is recommended that businesses review their internal processes and accounting systems to ensure they are prepared to implement this change when it takes effect.

How Much Helpful You Found This Article?

Rating_Star
Rated by 0 reader
/ 5 ( 0 reviews )
Not helpful
Somewhat helpfull
Helpful
Good
Best
RatingTick

Thank you for your feeback

Don’t forgot to share helpful information in your circle

Thank you for your details. We will reach out to you shortly.

Thanks for reaching out. Currently we are facing some issue.

Buy ₹1 Crore Term Insurance at Just ₹575/month1

*Min 3 characters
+91
*Please enter a valid 10 digit Mobile No.
*This field is required.

ABSLI DigiShield Plan

Life cover up to 100 years of age.

ICON-CLICK

Joint Cover Option

ICON-CLICK

Inbuilt Terminal Illness Benefit

ICON-CLICK

Tax Benefit^

ICON-CLICK

Return of Premium Option~

Life Cover
₹1 crore

Premium:
₹575/month1

1Scenario for Female, Non Smoker, Age: 21 years, Plan Option: Level Cover, Premium paying Term: Regular pay, Policy Term: 25 years, Pay Frequency: Annual, Premiums are exclusive of GST. (Annual Premium of Rs. 6900/12 months(On Average Rs.575/month) (offline premium)
ABSLI DigiShield Plan (UIN: 109N108V13) is a non-linked non-participating individual pure risk premium life insurance plan; upon Policyholder’s selection of Plan Option 9 (Level Cover with Survival Benefit) and Plan Option 10 (Return of Premium [ROP]) this product shall be a non-linked non-participating individual life savings insurance plan. All terms & conditions are guaranteed throughout the Policy Term. GST and any other applicable taxes will be added (extra) to your premium and levied as per extant tax laws.
~Available only on regular pay
^Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
The above contains independent research and views from publicly available electronic mediums and ABSLI disclaims anything disclosed other than the insurance related matter(s).
ADV/5/25-26/262

Subscribe to our Newsletter

Get the latest product updates, company news, and special offers delivered right to your inbox

Thank you for Subscribing

Stay connected for tips on insurance and investments

*Please enter a valid Email ID
whatsapp-imagewhatsapp-image