Everything You Need to Know about Reverse GST
What is the reverse GST charge?
You can understand the meaning of reverse charge by its
name. The process of GST recovery, which is inverted rather than the normal
process, is called reverse charge. You should consider it as such that in GST,
usually the supplier, i.e., the person selling the goods or services, charges
GST from the customer and deposits it to the government. But in some
circumstances, the responsibility of GST is not on the supplier but on the
receiver, i.e., the person who buys the goods or services; this is called the
Reverse Charge Mechanism (RCM). In reverse charge, the buyer does not pay the
GST to the seller and deposits the deposit directly to the government. In some
circumstances, there is also a partial reverse charge, i.e., the responsibility
of some part of GST is on the buyer, and the responsibility of the rest is on
the seller. In a line to put in the reverse charge system, the responsibility
of charging and depositing GST lies with the buyer, not the seller.
Where does the
reverse charge apply?
1. If you are a GST
registered person and receive goods or services or both from an unregistered
person, then the reverse charge will be applicable in this case, and you will
make the payment of GST. But if the total supply does not exceed 5000 in a day,
you will not be paying GST.
2.
Services provided to
the Company by the Director of the Company.
3.
Supply goods by road
to the specified person by Goods Transport Agency (GTA)
4.
To provide services
to a business entity by an advocate or an advocate firm
5.
Providing services
to business entities by Arbitral Tribunal
6.
Services provided by
a recovery agent to the banking company, financial institution, NBFC
7.
Providing
sponsorship services by any person to the body corporate or partnership firm
8.
The reverse charge
will apply to importing services from outside India. Importing services is
considered an interstate sale so IGST will be payable on
9.
Principal benefits
to the insurance company by the insurance agent
What is the
need for the reverse charge?
The concept of reverse charge has been created to prevent
tax evasion and widen the scope of taxes. It is impossible to recover GST from
the shopkeeper or person not registered with the GST network. A reverse charge
system has been developed to keep such deals within the tax ambit and charge
GST.
When is the
reverse charge applied?
Sections 9(3), 9(4), and 9(5) of the Central GST and
State GST Acts govern the reverse charge scenarios for interstate transactions.
Also, Sections 5(3), 5(4), and 5(5) of the Unified GST Act govern reverse
charge scenarios for inter-state transactions.
Let's understand in detail these scenarios:
A.
Supply of specific
goods and services specified by CBICAs per the powers conferred in Section 9(3)
of the CGST Acts, the CBIC has issued a list of goods and services on which
reverse charge is applicable.
B.
Supply to the
registered dealer from the unregistered dealer section 9(4) of the CGST Act
states that if a seller supplies goods to a person registered under GST if he
is not registered under GST, the reverse charge will be applicable.
This means that GST has to be paid directly to the
receiver instead of the supplier. The registered buyer who has to pay GST under
the reverse charge will have to invoice himself for the purchase made. In
intra-state purchases, CGST and SGST are to be paid by the buyer under the
reverse charge mechanism (RCM). Also, in inter-state purchases, the buyer will
have to pay IGST. The government notifies the list of goods or services to
which this provision is attracted from time to time. In case of supplies made
by unregistered persons to the registered persons, the RCM was postponed till
September 30, 2019. Earlier, this provision was in force from October 1, 2018.
In the real estate sector, the government notified that the promoter should buy
inward supplies only from registered suppliers to 80%.
Suppose there is an 80% reduction in purchases from
registered dealers, so the promoter should levy 18% GST on the reverse charge
to the extent of less than 80% of the inward supply. However, if the promoter
buys cement from an unregistered supplier, he will pay 28% tax. This
calculation has to be done despite 80% of the calculation. The promoter is
liable to pay GST based on reverse charge on TDR or floor space index supplied
on or after April 1, 2019. Even if a landlord does not engage in a regular
business of land-related activities, such a person's transfer of development
rights is liable for promoter GST as it is treated as a service supply under Section
7 of the CGST Act.
Moreover, in case of outward supply of TDR by one
developer to another, GST is applicable at 18% on reverse charge.
C.
Supply of services
through e-commerce operators types of businesses can use e-commerce operators
as an aggregator to sell products or provide services. Section 9(5) of the CGST
Act states that if a service provider uses an e-commerce operator to provide
specified services, the reverse charge will apply to the e-commerce operator.
He will be liable to pay GST. This section covers services such as Transport
services to passengers by radio-taxi, motor cab, maxi cab, and motorcycle. For
example, Ola, Uber provides accommodation services in hotels, inns, guest
houses, clubs, campsites, or other commercial places for residential or stay
purposes. Except that the person supplying such service through an electronic
commerce operator is liable for registration because turnover exceeds the
threshold limit for registration. For example – Oyo and MakeMyTrip.
Housekeeping services, such as plumbing and carpentry, except where the person
supplying such services through electronic commerce operators is liable for
registration due to turnover exceeding the threshold limit. For example, Urban
Clap provides the benefits of plumbers, electricians, teachers, beauticians,
etc. In this case, Urban Clap is liable to pay GST from customers and collect
it from customers instead of registered service providers. Also, suppose that
the e-commerce operator does not have a physical presence in the taxable area.
In that case, the person representing such an electronic commerce operator
shall be liable to pay tax for any purpose whatsoever. If there is no
representative, the operator will appoint a representative who will be liable
to pay GST.
Time of supply under RCAM
Time of supply in case of goods case of reverse charge,
the time of supply of goods will be the earliest of the following dates:
•
Date of receipt of
goods
•
Date of payment
•
Date immediately
after 30 days from the date of issue of invoice by the supplier.
It is impossible
to determine the time of supply; the time of supply will be the date of entry
into the recipient's books of account.
Who should pay
GST under RCM?
As per the provisions of the GST law, the person
supplying the goods will have to mention in the tax invoice whether the tax is
payable under the RCM. The following things should be kept in mind while making
GST payments under RCM:
•
The recipient of
goods or services can avail itc on the tax amount paid under RCM only when such
goods or services are used to further the business or business.
•
A composition dealer
should pay tax at regular rates and not structure rates while discharging
liability under RCM. Also, they are ineligible to claim any input tax credit of
the tax paid.
•
GST compensation
cess may apply to tax payable or paid under RCM.
Input Tax
Credit (ITC) under RCMA
The supplier cannot take GST paid under RCM as ITC. The
recipient can avail itc on the GST amount paid under the RCM on receipt of
goods or services only if such goods or services are used or used for
commercial purposes. The recipient cannot use ITC to pay output GST on goods or
services under reverse charge and should be paid only in cash.
What is
self-invoice?
To be invoiced when purchased from an unregistered supplier, and such purchase of goods or services falls under a reverse charge. This is because your supplier cannot issue you a GST-compliant invoice, and thus you become liable to pay taxes on their behalf. Therefore, in this case, it becomes necessary to create an invoice. Also, Section 31(3)(g) states that a recipient who is liable to pay tax under section 9(3) or 9(4) shall issue a payment voucher at the time of payment to the supplier.
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