Published Tue, 21 Mar 2023 Goods and Service Tax
Under the Goods and Service Tax (GST) regime, a normally registered taxpayer supplying goods and/or service is liable to pay tax. In other words, a registered supplier making taxable supplies is liable to collect GST from the recipient and pay to the Government. Under the reverse charge mechanism, the recipient of goods and/or services have to pay the tax to the government directly.
|Basis||Reverse Charge||Forward Charge|
|Assessment||The recipient has to self-assess the tax and the supplier will not charge GST in the invoice||The supplier has to assess the tax and transfer ITC to the recipient|
|Payment to Government||The recipient is liable to make payment to the Government||Supplier is liable to make payment to Government|
|Registration||The recipient has to register under GST||The supplier has to register under GST|
|Due date of Payment||Monthly||Monthly|
|Mode of Payment||By using Electronic Cash Ledger, the recipient cannot use his electronic credit ledger for payment of GST on such supply, but after payment of GST under RCM, he can take an input tax credit as per the provisions of ITC||By using:
Electronic Credit Ledger
Electronic Cash Ledger
GST shall be paid by the recipient of goods and services or both, on a reverse charge basis, in the following cases:
Goods notified by CBIC on which tax has to be paid on reverse charge basis under section 9(3) of CGST Act,2017 and 5(3) of IGST Act, 2017
|Goods||Supplier of Goods||Recipient of Goods|
|Cashew nuts, not shelled or peeled||Agriculturist||Any registered person|
|Bidi wrapper leaves (tendu)||Agriculturist||Any registered person|
|Tobacco leaves||Agriculturist||Any registered person|
|Silk yarn||Any person who manufactures silk yarn from raw silk or silkworm cocoons for the supply of silk yarn||Any registered person|
|Raw Cotton||Agriculturist||Any registered person|
|Supply of lottery.||State Government, Union Territory or any local authority||Lottery distributor or selling agent. Explanation.- For the purposes of this entry, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the provisions of subsection 1 of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998).|
|Used vehicles, seized and confiscated goods, old and used goods, waste and scrap||Central Government, State Government, Union territory or a local authority||Any registered person|
|Priority Sector Lending Certificate||Any registered person||Any registered person|
Services notified by CBIC on which tax has to be paid on reverse charge basis under section 9(3) of CGST Act,2017 and 5(3) of IGST Act, 2017
|Sr. no.||Nature of Service||Supplier||Recipient|
|1.||Supply of services in relation to transportation of goods by road (GTA). **||Goods transport agency (GTA) who has not paid tax at the rate of 12% (i.e. CGST 6% & SGST 6%)||
However, reverse charge mechanism shall NOT apply to services provided by a GTA by way of transport of goods in a goods carriage by road to:
Which has taken registration under the CGST, Act only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services.
||Legal Services||Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly||Any business entity located in the taxable territory|
|3||Arbitral tribunal||An arbitral tribunal||Any business entity located in the taxable territory|
|4||Sponsorship services||Any Person||Anybody Corporate or Partnership Firm Located in the taxable territory|
|5||Government Services||Central Government, State government, a Union territory or local authority
|Any business entity located in the taxable territory.|
|6||Government Services||The central government, State government, Union Territory, Local Authority by way of renting of immovable property||Any registered person in the taxable territory.|
|7||Floor Space Index (FSI)||Transfer of developmental rights or floor space index (including Additional FSI) for construction of a project by any person.||Promoter|
|8||Long term lease of Land||Any person having a long term lease of land ( 30 years of more) against consideration in the form of the upfront amount and or periodic rent for construction of a project||Promoter|
|9||Director Services||Director of company or body corporate||Company or body corporate|
|10||Insurance Services||Insurance Agent||Any person carrying insurance business|
|11||Recovery agent services||Recovery Agent||A banking company or financial institutions or non-banking financial institutions located in the taxable territory|
|12||Copyright and development rights issues||A music composer, photographer, artists||A music company, producer, or the like, located in the taxable territory|
|13||Copyright service by Author||Author by way of transfer or permitting the use or copyright relating to original literary works to a publisher||Publisher located in the taxable territory|
|14||Services to RBI||Members of Overseeing committee||Reserve Bank of India|
|15||Individual direct selling agents||Individual direct selling agents other than a body corporate, partnership, or limited liability partnership firm||A banking company or non-banking financial company, located in the taxable territory|
||Business facilitator||Business Facilitator||A banking company located in the taxable territory|
||Business correspondent||An agent of business correspondent||A business correspondent located in the taxable territory|
|18||Security Services||Security services provided by way of supply of security personnel||A registered person
The service is not applicable on:
|19||Import of services||Any person from a non-taxable territory||Any person other than non-taxable online recipient|
|20||Import of Goods by vessel||A person located in non-taxable territory||Importer|
** Tax on GTA services can be paid by the supplier at their option but if the same is not paid by the supplier then tax is payable under reverse charge by the recipient. GTA Services are taxable at the following 2 rates:
Tax Payable by the Electronic Commerce Operator on Notified Services (NN 17/2017 CT(R) dated 28.06.2017 and NN 14/2017 IT (R) dates 28.06.2017
There are such cases where the tax on specified services is required to be paid by Electronic Commerce Operator when such services are supplied through it. The Government has notified the following categories of services the tax on supplies of which shall be paid by the ECO:
Condition for claiming Input Tax Credit (ITC) for the tax paid on Goods and/or Service under RCM
Under RCM, the supplier cannot claim the input tax credit on GST paid on goods and services that attract tax on a reverse charge basis. Thus, it is the recipient who claims the benefit of the input tax credit on goods or services that are liable to tax on a reverse charge basis. Therefore, payment of any tax amount liable to be paid under reverse charge mechanism shall be made through Electronic Cash Ledger of the recipient only. Also, the recipient can avail credit for the tax paid on goods or services subject to reverse charge only if such goods or services are used or would be used for business purposes by him.
Further, the composite dealer falls under the reverse charge mechanism then the dealer cannot claim any credit of tax paid. The tax rate for the supplies received by the composition dealer is normal applicable rates and not at the composition rates.
Documents required for Goods/Services required to be maintained for RCM supplies
Recipient of services need to maintained below documents for to claim an input tax credit under GST
Frequently Asked Questions (FAQ)
Q: Does aggregate turnover include the value of inward supplies received on which RCM is payable?
No, as per section 2(6) of CGST Act, 2017, Aggregate turnover does not include the value of inward supplies on which tax is payable on a reverse charge basis.
Q: In case the supplier has paid GST which, was payable by the recipient on the reverse charge, is the recipient discharged from the liability to pay tax on the reverse charge?
No, even if the supplier has paid tax on the supplies on which tax is payable under RCM must be paid by the recipient.
Q: Is the condition to pay the supplier within 180 days applicable to supplies covered by reverse charge?
No, the second proviso to Section 16(2) of the act days does not apply to supplies on which tax is payable on a reverse charge basis.
Also Read This: Refund Claims Under GST