Home > GST Home > GST Help Center> Reverse Charge Under GSTLast Updated: May 12th 2019

Reverse Charge Mechanism (RCM) under GST - Explained

In case of certain notified supplies, the receiver of goods or services is liable to pay GST under reverse charge mechanism (RCM). Read more on reverse charge mechanism, its applicability, goods & services notified under such, its impact on eCommerce Operators, and related frequently asked questions

Applicability of Reverse Charge Mechanism (RCM)

Generally, the supplier of goods or services is liable to pay GST. However, in case of certain notified supplies, the receiver of goods or services is liable to pay GST under reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of goods or services instead of supplier of such goods or services.

Reverse Charge will be applicable in case of following situations

1) Supplies received by registered persons from unregistered suppliers

  • GST on reverse charge is levied if there is intra State supply of goods or services or both by an unregistered supplier to a registered person and the value exceed Rs 5000 in a day.
  • GST on reverse charge is payable on inter State supply of goods by an unregistered supplier to registered supplier

2) Supply of certain goods or services notified by CBEC

Goods notified under Reverse Charge

Goods like Cashew nuts (not shelled / peeled), bidi wrapper leaves, tobacco leaves, supply of lottery, silk / yarn etc. are taxable under reverse charge mechanism i.e., recipient is liable to pay tax.

Service notified under Reverse Charge

The following categories of services are notified under reverse charge mechanism. The recipient of services is liable to pay GST in case of following services.

  1. Supply of Services by Goods Transport Agency (GTA) in respect of transportation of goods by road to any factory, society, co-operative society, body corporate, any person registered under GST, partnership firm, casual taxable person
  2. Supply of services by an individual advocate including a senior advocate to any business entity located in the taxable territory.
  3. Supply of services by an arbitral tribunal to a business entity.
  4. Services provided by way of Sponsorship to a body corporate or partnership firm.
  5. Services supplied by the central/State government or local authority to a business entity excluding renting of immovable property, services by the department of post, services in relation to aircraft or vessel, transport of goods or passengers.
  6. Supply of services by a director of a company/ body corporate to the said company/body corporate.
  7. Services supplied by an insurance agent to any person carrying on such business (Insurance Business).
  8. Services supplied by a recovery agent to a banking company or financial institution or NBFC
  9. Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use of copyright relating to original literary, dramatic, musical or artistic works to publisher, company, producer or the like.

Tax Payable by the e-Commerce operator on notified services

  • Electronic Commerce, aka e-Commerce Operators (ECO) displays products as well as services which are supplied by some other person to the consumer on their electronic portal.
  • The consumers buy such goods / services through these portals.
  • The actual supplier supplies the selected product / service to the consumer on the selection.
  • The consideration for the product / service is collected by the ECO from the consumer and passed on to actual supplier after the deduction of ECO commission.

The government has notified the specific categories of services where the tax on intra state supplies shall be paid by the E Commerce operator if such services are supplies through it.

  1. Services by way of transportation of passengers by a radio taxi, motor cab, minicab and motor cycle
  2. Services by way of providing accommodation in hotels, inns, guest houses, clubs etc except where the person supplying such service through e commerce operator is liable for registration under GST act
  3. Services by way of housekeeping such as plumbing, carpentering etc except where the person supplying such service through e commerce operator is liable for registration under GST act

FAQs on Reverse Charge Bill under GST

1.Is it lawful to collect tax from recipient of supply on reverse charge basis?

Yes, as long as the tax is on the subject of levy, the Government is free to collect this tax from any person either the supplier or the recipient or anyone else. Even a third party can be called upon to deposit the tax provided there is some nexus such as collection of payment for the supply between two other persons.

2.What is the effect of reverse charge on input tax credit?

The recipient who pays tax on reverse charge basis can take the input tax credit of the tax paid under reverse charge. For supplier whose tax is paid by the recipient, value of such supply will be treated as ‘exempt supply’.

3.In case supplier has paid GST which, was payable by recipient on reverse charge, is recipient discharged from the liability to pay tax on reverse charge?

No, even if supplier has somehow paid tax, reverse charge liability must be discharged by the recipient.

4.Is GST wrongly paid by supplier available as input tax credit (ITC) to recipient? [In case of Reverse Charge] ?

No, GST wrongly paid by supplier cannot be claimed as input tax credit (ITC) by recipient in case of supply reported in FORM GSTR-1 as "Supplies attracting tax on reverse charge basis". However, the supplier can claim for refund of tax wrongly paid.

5.Is condition to pay supplier within 180 days applicable to supplies covered by reverse charge?

No, second proviso to Section 16(2) of the CGST Act requiring the recipient to make payment towards the value of supply along with tax payable thereon within a period of 180 days does not apply to supplies on which tax is payable on reverse charge basis.

6.M/s XYZ Pvt. Ltd. imported some goods on which it was liable to pay GST under reverse charge. While the goods were lying at port, goods were lost or destroyed due to some natural disaster. In this case will it be liable to GST?

In case of natural disaster or loss, no import duty is levied, therefore no GST will be applicable.

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