Reverse charge mechanism under GST

It is called reverse charge because under this mechanism, person at the receiving end, that is receiver of goods or service is liable to pay GST.

CASES WHEN REVERSE CHARGE WILL APPLY

1. Supply made by unregistered dealer to a registered dealer.

2. Services through an e-commerce operator. For example Urban clap is liable to pay service tax and not the service providers registered with them who are actually delivering the services to customers.

3. Specified List of goods and services as mentioned by Central Board of Excise and Custom.

Time of supply-FOR GOODS under Reverse charge mechanism:

Earliest of the below:

1. Date of receipt of goods

1. Date of Payment

1. 30 days from the date of issue of an invoice by supplier

If it becomes impossible to determine based on above three points then time of supply shall be date of entry in the books of account of the recipient.

Time of supply-FOR SERVICES under Reverse charge mechanism:

Earliest of the below:

1. Date of payment

1. 60 days from the date of issue of an invoice by supplier

If it becomes impossible to determine based on above two points then time of supply shall be date of entry in the books of account of the recipient.

Time of supply-If supplier is located outside India

Earliest of the below:

1. Date of payment

1. The date of entry in the books of account of receiver

Input Tax Credit under RCM

A supplier cannot take input tax credit of GST paid on goods or services on which the recipient is liable to pay tax.

• The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services.
• The only condition is that the goods and services are used or will be used for business or furtherance of business.
• Under RCM ITC cannot be used to pay output tax, Therefore the payment mode is only through cash under reverse charge.

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