Reverse Charge Mechanism in GST- Basic Section 9 - GST Ready Reckoner - GST

Reverse Charge Mechanism in GST- Basic Before going ahead we should first understand the meaning of following terms Supplier Recipient Taxable Person Agriculturist Business Entity Body corporate Registered Person What is the reverse charge Mechanism Under GST Generally, the supplier of goods or services is liable to pay GST. Reverse Charge Mechanism (RCM) means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply. The objective of shifting the burden of GST payments to the recipient is to widen the scope of levy of tax on various unorganized sectors, to exempt specific classes of suppliers, and to tax the import of services (since the supplier is based outside India). Only certain types of business entities are subject to the RCM. RCM only shifts the responsibility for tax payment, and all other provisions of GST, including the determination of the place of supply, time of supply, and the value of goods or services, remain unchanged. Compliances in respect of supplies under reverse charge mechanism 1. Liability to obtain registration Persons who are liable to pay tax under the Reverse Charge Mechanism (RCM) are required to obtain compulsory GST registration, irrespective of the threshold limit specified section 22(1) of CGST Act,2017, by virtue of section 24(iii) of CGST Act, 2017. This section 24 override section 22 but not section 23 of CGST Ac, 2017 . Section 22 provides for exemption from registration when aggregate turnover does not exceed Rs. 20 lakhs. section 23 provides for exemption from registration to those who are exclusively engaged in supply of goods or services or both which are not liable too tax or are wholly exempt and to an agriculturist, to the extent of supply of produce out of cultivation of land. Person who are exempt from registration under section 23 of CGST Act are not required to register under section 24 of CGST Act. 2. Payment and Input Tax Credit in case of RCM: - Any amount payable under the Reverse Charge Mechanism (RCM) must be paid by debiting the electronic cash ledger only. The RCM liability cannot be settled using the electronic credit ledger. Recipient has the right to claim ITC of tax deposited under reverse charge subject to the following two conditions: (i) The recipient must have received the goods or services, (ii) The recipient will use the goods or services for business purpose only. A supplier cannot claim Input Tax Credit (ITC) on GST paid for goods or services used to make supplies on which the recipient is liable to pay tax under the Reverse Charge Mechanism (RCM). 3. Time of Supply when GST on goods or services payable on RCM basis The Time of supply is the point when the supply is liable to charge GST. One of the factors relevant for determining time of supply is the person who is liable to pay tax. In RCM, recipient is liable to pay GST. Thus, time of supply for supplies under RCM is different from the supplies which are under forward charge. Section 12(3) of CGST Act, 2017 deal with the time of supply of goods , in case of supplies of goods in respect of which tax is paid or liable to be paid on reverse charge basis. Section 13(3) of CGST Act, 2017 deal with the time of supply of services , in case of supplies for Services in respect of which tax is paid or liable to be paid on RCM basis. 4. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge. 5. Furnishing detail in GSTR-1:- Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1. 6. RCM applicable on advance payment for reverse charge supplies:- Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis. 7. Self-invoicing is to be done when purchased from an unregistered supplier, and such purchase of goods or services falls under RCM. This is because your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.