Meaning of Reverse Charge under GST

Posted on 10 June 2022 Category : GST terms

Reverse Charge under GST

The details about Reverse Charge under GST are explained here.

GST on RCM Basis:

“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 under sub- section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.

Reverse Charge under GST

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.

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.

Situations Where the Reverse Charge Will Apply in GST:

For Supply of Goods:

Cashew nuts, not shelled or peeled
Bidi wrapper leaves (tendu)
Tobacco leaves
Silk yarm
Supply of lottery.

For Supply of Services:

Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to-

i. any factory registered under or governed by the Factories Act, 1948(63 of 1948);or

ii. any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or

iii. any co-operative society established by or under any law; or

iv. any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or

v. anybody corporate established, by or under any law; or

vi. any partnership firm whether registered or not under any law including association of persons; or

vii. any casual taxable person.

Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.
Services supplied by an arbitral tribunal to a business entity.
Services provided by way of sponsorship to any body corporate or partnership firm.
Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, -

renting of immovable property, and
services specified below-

i. services by the Department of authority Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;

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.

Services supplied by a director of a company or a body corporate to the said company or the body corporate.
Services supplied by an insurance agent to any person carrying on insurance business.
Services supplied by a recovery agent to a banking company or a financial institution or a non- banking financial company.
Supply of services by an author, music composer, photographer, artist or the like by way of 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 works to a publisher, music company, producer or the like.
Services received by person from the person who is located in a non-taxable territory

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