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Reverse Charge Mechanism Under GST

Reverse Charge Mechanism Under GST

Reverse Charge Mechanism Under GST

Reverse Charge Mechanism Under GST : GST is the new tax regime that will replace many of the current indirect taxes and will remove the complexities of it. The Finance Ministry department has set the target date of 1 July 2017, to get GST implemented to the whole nation.

The GST enrollment procedure for migration has already started for the proposed tax regime. While in India, the current tax system is origin-based, GST will be a destination-based tax system. It will replace a total of 17 taxes such as Service Tax, VAT, Excise Duty, Counter Veiling Duty (CVD), SAD, Entry Tax, Purchase Tax etc. Central Government has enacted 4 GST Bills until now,

  • CGST (Central GST)
  • IGST (Integrated GST)
  • UTGST (Union territory GST)
  • Bill to compensate states.

Reverse Charge Mechanism Under GST

A well-designed GST will not only eliminate cascading effect and double taxation but will also smoothen the functioning of the business. It is projected that India will have an increased growth by 2% and will boost revenues for the government because it will affect both manufacturing and service sector.

India is a country where there are organized, partly organized and unorganized sectors, which require continuous monitoring for better tax compliance and coverage. To carry out this function smoothly, the government had introduced REVERSE CHARGE MECHANISM.

Reverse Charge Mechanism Under GST

Under present scenario, the reverse charge is there in Service Tax and is applicable to only services and not goods. Under service tax, generally, service providers are liable to collect and deposit tax. Although the incidence of the tax is placed on consumers ultimately, it is the duty of the supplier to deposit the tax.

However, in certain cases, charge ability gets reversed from supplier to the recipient which is why it is called reverse charge. There are 15 services in which reverse charge is applicable under service tax such as Insurance agent, Manpower supply, Goods Transport Agency etc.

It is a new concept that is introduced in GST in India, to increase tax revenues, coverage and compliance from partly or unorganized sectors.

Earlier goods were exempt from this scheme, now the collection of GST will increase tremendously.

Reverse Charge Mechanism Under GST

In GST, the supplier will be liable to collect tax on goods and services provided. But the central government has the power to notify categories of supplies against which service recipient has to discharge the tax liability. Hence, all the provisions of the Act will now be applicable to the recipient of such goods or services as if he is the supplier of such goods or services.

When a person becomes liable to pay tax on the reverse charge, certain provisions like threshold exemption, time of supply, availing of input credit changes. There is a threshold limit for turnover aggregating to Rs.20 Lakhs for registration for normal tax payers but under reverse charge, there is no such limit. The person has to be registered under GST irrespective of the aggregate limit.

Reverse Charge Mechanism Under GST

Situations Where The Reverse Charge Will Apply

  1. Services supplied by an Electronic Commerce Operator will attract reverse charge and they will be liable to pay GST. If the assessee has no physical presence in the taxable area, then the representative of such e-commerce operator will be liable to pay tax. If there is no representative, then the assessee has to appoint one who will be liable to pay GST. For Example:UrbanClap supplies services of a plumber, a beautician, an electrician, etc. hence, instead of registered service providers, UrbanClap have to pay GST and collect from customers.
  2. If the registered dealer is buying goods or services from an unregistered dealer then, the registered dealer will be liable to pay tax on supply.
  3. All other categories of supplies will be notified by Central or State government that will fall under reverse charge.

Reverse Charge Mechanism Under GST

Time Of Supply For Goods Under Reverse Charge 

Provisions are different under reverse charge than normal scenario. Time of supply will be the earliest of the below dates:

  • When the goods are received i.e. the date of receipt.
  • When the amount is paid i.e. the date of payment.
  • Date of payment shall be earliest of ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’
  • The date immediately after 30 days from the date the supplier issues invoice.

If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient enters in his books of account.

For Example:

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

Thus, Time of supply will be – 16th May 2017. If by any chance time of supply could not be determined under mentioned clauses then it will be 18th May 2017, i.e. Date of entry.

Reverse Charge Mechanism Under GST

Time of Supply for Services Under Reverse Charge

 Similarly, provisions are different for services under reverse charge. Time of supply will be the earliest of the below dates:
  • When the amount is paid i.e. the date of payment OR
  • Date of payment shall be earliest of – ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.
  • The date immediately after 30 days from the date the supplier issues invoice.

If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient of service enters in his books of account.

For Example:

Date of Payment – 16th June 2017
Date of Invoice – 1st July 2017
Date of Entry in books by recipient – 18th June 2017

Thus, Time of supply will be – 16th June 2017. If by any chance, time of supply could not be determined under mentioned clauses then it will be 18th June 2017, i.e. Date of entry.

If the supplier is located outside India, then the time of supply shall be the earliest of – ‘When the amount is paid i.e. the date of payment’ OR ‘When the recipient records the payment in his books of account’.

Reverse Charge Mechanism Under GST

SERVICES UNDER REVERSE CHARGE AS APPROVED BY GST COUNCIL

The fitment of rates of services were discussed on 19 May 2017 during the 14th GST Council meeting held at Srinagar, Jammu & Kashmir. The Council has broadly approved the GST rates for services at Nil, 5%, 12%, 18% and 28%. The list of services that will be under reverse charge as approved by the GST Council is given below.

The information is being uploaded immediately after the GST Council’s decision and it will be subject to further vetting during which the list may undergo some changes. The decisions of the GST Council are being communicated for general information and will be given effect to through gazette notifications which shall have force of law. 

Reverse Charge Mechanism Under GST

Sl No.ServiceProvider of service Percentage of service tax payable by service providerRecipient of ServicePercentage of service tax payable by any person other than the service provider
1.Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessee online recipient (OIDAR) Any person who is located in a nontaxable territory Nil  Any person located in the taxable territory other than non-assessee online recipient (Business Recipient)100%
2.Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road Goods Transport Agency (GTA)Nil  (a) any factory registered under or governed by the Factories Act, 1948;

(b)any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India;

(c) any co-operative society established by or under any law;

(d)any person registered under CGST/SGST/UTGST Act;

(e) any body corporate established, by or under any law; or

(f) any partnership firm whether registered or not under any law including association of persons.

(g) Casual taxable person

100%
3.Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectlyAn individual advocate or firm of advocates Nil Any business entity100%
4.Services provided or agreed to be provided by an arbitral tribunalAn arbitral tribunal Nil Any business entity.100%
5.Sponsorship services Any personNil Anybody corporate or partnership firm100%
6. Services provided or agreed to be provided by Government or local authority excluding, –

(1) renting of immovable property, and

(2) 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 Government;

(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.

Government or local authorityNil Any business entity100%
7.Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate; A director of a company or a body corporateNil A company or a body corporate.100%
8.Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business An insurance agentNil Any person carrying on insurance business. 100%
9.Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company A recovery agentNil A banking company or a financial institution or a nonbanking financial company. 100%
10.Services 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 to a person located in non-taxable territoryNil Importer as defined under clause (26) of section 2 of the Customs Act, 1962100%
11.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, dramatic, musical or artistic worksAuthor or music composer, photographer, artist, etcNil Publisher, Music company, Producer100%
12.Radio taxi or Passenger Transport Services provided through electronic commerce operator Taxi driver or Rent a cab operatorNil Any person100% by Electronic Commerce Operator

Reverse Charge Mechanism Under GST

Sl No.TopicDOWNLOAD LINK
1.Schedule of GST rates for services CHECK HERE
2.GST Tariff Code in Uttar Pradesh CHECK HERE
3.Complete Details on GST CHECK HERE

Check here for more GST Offline Utilities – Click

Reverse Charge Mechanism Under GST

Check here to know more on GST Delivery Challan :

SL NO. TOPICSLINK
1.GST Delivery Challan Excel format 1CHECK HERE
2.GST Delivery Challan Excel format 2CHECK HERE
3.GST Delivery Challan PDF formatCHECK HERE

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