The generally practiced taxation norm is that any supplier of goods and services is liable to pay the requisite Goods and Services Tax (GST) to the government. However, in certain specified cases GST is collected from the receiver of the goods and services instead of the supplier. This mechanism where the receiver of the goods and services becomes liable to pay the GST is known as Reverse Charge under gst and is duly incorporated by the government under the GST regime. In practice, certain statutory provisions give effect to two types of cases where reverse charge under gst notification is applicable and are as follows:

Reverse charge mechanism under gst for services

1. Purchase from any supplier of specified goods and services- In this situation the application of reverse charge under gst is dependent on the nature of supply of goods and services or the supplier itself under Section 9(3) of the CGST Act and Section 5(3) of the IGST Act. These goods and services are expressly listed and reverse charge on them is payable by the receiver even if the supplier is registered. Some of the reverse charge services under gst are
2. services include those that are provided by an arbitral tribunal,
3. any entity located in a non-taxable territory,
4. legal services by an advocate or by
5.  Services by goods transport agency (GTA) like reverse charge under gst on freight

Goods on which Reverse charge applies are-

• suppliers of cashew nuts,
• bidi wrapper leaves,
• tobacco leaves,
• silk yarn and
•  supply of lottery.

Herein, it is mandatory for the receiver (and not the supplier) of goods and services to be registered irrespective of threshold limit of 20 lakhs (10 lakhs for Hill States and North-East States stated under Section 24 of CGST Act).  States were also granted the liberty to impose double threshold limit for registration of upto 40 lakhs.

Rcm on purchase from unregistered person supplier

It covers cases where a taxable supply of goods and services is made by an unregistered supplier to a registered receiver under Section 9(4) of CGST Act and Section 5(4) of IGST Act. It covers cases where a registered receiver is liable to pay tax on reverse charge basis for any services and goods purchased from an unregistered supplier provided the total purchase in any given day is INR 5,000 or below. Further, an unregistered supplier is prohibited to make inter-state sales and therefore this supply of goods and services is always intra-state. Gst under reverse charge become applicable in this case.

Rcm on services through an E-commerce operator

• An e-commerce operator providing a platform for buyers and sellers of services is liable to pay GST on behalf of the suppliers. A simple example would be of the e-commerce operator Uber that provides transportation services through its cars to its passengers. In this case, it is Uber that is liable to pay GST on behalf of the service provider i.e the driver or the receiver i.e. the passenger.

This concept was adopted to achieve multiple objectives. Firstly, it aims to widen the scope of levying taxes on the unorganized sectors through self-policing by the taxpayers. Secondly, it intends to check tax evasion by encouraging many unregistered suppliers to register on GSTN thereby ensuring transparency.  Finally, it aims to grant exemptions to a specified class of supplier of goods and services and importation of services.    

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Procedure for payment of GST under RCM

The receiver bestows maximum burden under reverse charge and must ensure compliance with certain procedural aspects for ease of operation. Some of the important factors are explained below-

Rate of GST: Under reverse charge, the rate of tax to be used is the rate applicable on such goods and services like for example the rate applicable for services of GTA which is listed under the reserve charge list is 18% and the receiver is required to pay in full (100% of service tax payable).

Time of Supply: The time of supply is also an important factor in determining the rate of GST applicable, value and due dates for filing returns. Time of supply means the time when the goods and services are rendered and can be determined in cases of-

1.Supply of goods (whichever earliest)-

1. Date of receipt of goods,
2. Date of payment as mentioned in the account register of the receiver,
3. Date on which the payment is debited from receivers’ bank account,
4. Date immediately following 30 days from the date of issue of invoice

2. Supply of services (whichever earliest)-

1. Date of payment,
2. Date immediately following 60 days from the date of issue of invoice or
3. Date of entry in the accounts register of the receiver.

Reverse charge invoice under gst

The registered receiver of goods and services who is liable to pay the tax under reverse charge has to issue an invoice in respect of the goods and services received. This practice of creating an invoice by the receiver is known as self-invoicing. Self-invoicing is particularly significant in cases where the goods and services are availed from an unregistered supplier and these goods and services fall under reverse charge. The receiver shall also issue a payment voucher at the time of making the payment to the supplier. Additionally, the supplier of goods and services covered under reverse charge categories are required to indicate on their invoice that the tax is to be paid under RCM.

Manner of GST payment under rcm

As according to the GST statue, Input Tax Credit (ITC) can only be used for the payment of output tax due to which one can pay tax under reverse charge merely in cash without availing the benefit of ITC. Other important points to remember in this respect are-

1.  A receiver of services can avail ITC on the tax paid under reverse charge for goods and services only if the said goods and services are used for business or furtherance of the business.
2. A composition dealer under reverse charge is ineligible to claim credit on tax paid. The dealer will also have to pay tax at normal rates and not composition rates.
3. GST compensation cess is applicable on the tax payable or paid under RCM.

To conclude, under RCM the receiver becomes liable to pay the tax on supply of goods and services unlike normal practices where the supplier is liable to pay the tax. It is also important to note that as understood from above, RCM while being burdensome for supply receivers, does help increase tax compliance on a broader scale including unorgansied sectors and promotes transparency.

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