4. reverse charge machanism under gst.
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The document discusses the reverse charge mechanism under GST. It provides an introduction to reverse charge and explains that in some cases, the liability to pay tax shifts from the supplier to the recipient of goods or services. It lists various goods and services that are subject to reverse charge as specified by the government. It also discusses key aspects of reverse charge like applicable recipients and suppliers, time of supply, and implications for composition scheme registrants.
4. reverse charge machanism under gst.
- 1. REVERSE CHARGE MECHANISUM UNDER GST CACA N.RAMASWAMY, F.C.A.N.RAMASWAMY, F.C.A. CHENNAI- 600024CHENNAI- 600024 PH- 04424732130PH- 04424732130 MOBILE: 9840446412MOBILE: 9840446412 1
- 2. Introduction In terms of section 9(1) of Central Goods and Services Tax Act, 2017, Central Goods and Services Tax (CGST) shall be levied on all intra-state supplies of goods & services or both except the supply of alcoholic liquor for human consumption. In terms of section 5(1) of Integrated Goods and Services Tax Act, 2017, Integrated Goods and Services Tax (IGST) shall be levied on all inter-state supplies of goods & services or both except the supply of alcoholic liquor for human consumption. In short it is the supplier of goods / provider of services who are liable to pay the tax to the Government. 2
- 3. Liability Reverse Charge mechanism “Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both 2(98) of CGST Act. by virtue of section 9(3) of Central Goods and Services Tax Act, 2017 and section 5(3) of Integrated Goods and Services Tax Act, 2017, the Government on recommendations of council may specify categories of supply of goods or services or both wherein tax shall be paid under reverse charge. Govt has issued Notification specifying the goods, Services which are liable to tax under Reverse charge Mechanism under section 9(3) / 5(3) 3
- 4. Sec 9 (3) of CGST Act The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Similar provision is made in the IGST Act as well as state GST Acts. As per section ( (4) supply of goods/ services who is not registered to REGISTERED Person , Tax shall be paid by the recipient . Similar provision is availabe in IGST & SGST Acts. As well. 4
- 5. Applicable to listed goods/ services Payment of GST Reverse charge may be applicable in case of supply of notified goods / services or both. Reverse charge is also applicable in case of supply by an UNREGISTERED person to a REGISTERED person, where such supply is of taxable goods or services Exempt supply received from an un-registered person is not covered under reverse charge mechanism Government does not ask the recipient of supply to pay tax under reverse charge mechanism if such supply is exempt under GST. Even in case some supplies are exempt conditionally, the same is excluded from the purview of reverse charge mechanism subject to those conditions 5
- 6. Who is liable to pay tax under reverse charge mechanism? liability to pay tax under RCM not only depends upon category of goods or services, but it also depends upon the category of recipient, category of supplier and place of provision of such supplies. Under reverse charge mechanism, liability to pay tax on a particular supply is on the recipient of supply .Exception is provided under section 9 (5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services Radio TRadio Taxi / passenger trasnport through electronic commerce operator.axi / passenger trasnport through electronic commerce operator. RCM by Electronic Commerce operator.RCM by Electronic Commerce operator. 6
- 7. Time of supply in case of RCM Where RCM is applicable, time of supply shall be the earliest of the following dates, namely: the date of the receipt of goods; or the date of payment as entered in the books of account of the recipient; or the date on which the payment is debited in his bank account, whichever is earlier; or the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier. When it is not possible to determine the time of supply as above, the time of supply shall be the date of entry in the books of account of the recipient of supply 7
- 8. Goods covered under Reverse charge Sr No HSN code Description of supply of good Supplier of goods Recipient of supply 1 0801 Cashew nuts, not shelled or peeled Agriculturist Registered Person 2 1404 90 10 Bidi wrapper leaves (tend Agriculturist Registered Person 3 2401 Tobacco leaves Agriculturist Registered Person 4 5004 to 5006 Silk Yarn Any person who manufactures silk yarn from raw silk Registered Person 5 Supply of lottery State Government, Union Territory Lottery distributor or selling agent. 8
- 9. Services covered under Reverse charge Sr No HSN code/ Rate of tax Description of supply of Services Supplier of Servicea Recipient of supply 1 996791 5% GST. Transport of goods by road Good Transport Agency 1) Factory 2) Society 3) Registered in GST Act. 4) Body Corporate 5) Firm 6) Casual Person located in a taxable territory 2 998211 18% Services by Advocate / Sr. Advocate – representational Services by Advocate / Sr. Advocate Any business entity located in the taxable territory. 3 998215 18% Arbitral Tribunal Arbitral Tribunal Any business entity located in the taxable territory 9
- 10. Services covered under Reverse charge Sr No HSN code Description of supply of Services Supplier of Services Recipient of supply 4 998397 18% sponsorship to any body corporate or partnership firm. Any person Any body corporate or partnership firm located in the taxable territory. 5 18%% Services by Govt Excluding 1) Renting, 2)Post office by way of Speed post, life insurance, 3) Air Craft/ Vessel in a port or Airport., 4) Transport of goods & passengers Central t, State Govt Union Territory or Local Authority Any business entity located in the taxable territory 10
- 11. Services covered under Reverse charge Sr No HSN code Description of supply of Services Supplier of Services Recipient of supply 6 999799 18% Services by Director to a body corporate/ Company A director of the company The company or a body corporate located in the taxable territory. 7 997161 18% Insurance Agent Insurance Agent Any person carrying on insurance business, located in the taxable territory. 8 999799 18% A recovery agent A recovery agent A banking company or a financial institution or a non- banking financial company, located in the taxable territory. 11
- 12. Services covered under Reverse charge Sr No HSN code Description of supply of Services Supplier of Services Recipient of supply 9 999632 18% by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright Author or music composer, photographer, artist, or the like Publisher, music company, producer or the like, located in the taxable territory. . 12
- 13. Services covered under RCM Services on which reverse charge was applicable in earlier law are now out of reverse charge. They are:- To be provided by mutual fund agent or distributor to a mutual fund or asset management company. • To be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent. • Renting of motor vehicle except through e-commerce operators. • Supply of manpower or security service. • Work Contract Service After 1After 1stst July 2017, Reverse charge are applicable as per subJuly 2017, Reverse charge are applicable as per sub section 3,4 of section 9 of the GST Act.section 3,4 of section 9 of the GST Act. 13
- 14. Services covered under RCM (9) 4 (4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Thus any supply of goods, service or both by unregisteredThus any supply of goods, service or both by unregistered person to a registered person will be covered under thisperson to a registered person will be covered under this section.section. There is a general Exemption to the extent of Rs. 5000/- perThere is a general Exemption to the extent of Rs. 5000/- per day up to which payment of GST under RCM by Registeredday up to which payment of GST under RCM by Registered person is exempted.person is exempted. 14
- 15. Composition Scheme & RCM Section 2(62) says that “input tax” does not include the tax paid under the composition levy. Here the word used are “under” and “levy” and not “by” and “dealer/person”. Also section 10(1) state that Composition scheme does not affect the liability of the dealer to pay tax under reverse charge mechanism. Also section 10(4) state that Composition dealer shall not be entitled to any credit of input tax. So it can be interpreted that a composition dealer shall not claim credit of tax paid under Reverse Charge Mechanism. Also composition dealer shall pay tax under Reverse Charge Mechanism at normal rate of tax applicable to such supply and not at the rate applicable for his category. 15
- 16. Composition Scheme & RCM Section 2(62) says that “input tax” does not include the tax paid under the composition levy. Here the word used are “under” and “levy” and not “by” and “dealer/person”. Also section 10(1) state that Composition scheme does not affect the liability of the dealer to pay tax under reverse charge mechanism. Also section 10(4) state that Composition dealer shall not be entitled to any credit of input tax. So it can be interpreted that a composition dealer shall not claim credit of tax paid under Reverse Charge Mechanism. Also composition dealer shall pay tax under Reverse Charge Mechanism at normal rate of tax applicable to such supply and not at the rate applicable for his category. 16