Reverse Charge under GST

The Reverse Charge Mechanism is the method of paying GST by the recipient rather than the seller. In this situation, the recipient/receiver assumes the responsibility for tax payment rather than the seller.

When is Reverse Charge under GST Applicable

The licensed dealer who is required to pay GST under reverse charge must self-invoice for sales made. The customer would pay IGST on interstate sales. The customer must pay CGST and SGST on intra-state purchases under RCM.

For eg, UrbanClap offers the services of plumbers, electricians, teachers, beauticians, and other professionals. Instead of licensed service providers, UrbanClap is required to pay GST and receive it from consumers. If the e-commerce operator does not have a physical presence in the taxable jurisdiction, a person representing such an e-commerce operator for any reason must pay tax. If there is no official, the operator will nominate one who will be responsible for GST.

This case is reversed when the individual purchasing the goods and services is required to pay taxes. If the recipient purchases products from an unregistered provider, GST must be charged on their behalf. The retailer must give a payment voucher to the receiver. According to Section 2(94) of the CGST Act, 2017, the recipient must be a registered individual.

According to Section 2(98) of the CGST Act of 2017, a “reverse charge” is the obligation to pay tax by the purchaser of delivery of products or services or both rather than the seller of those goods or services or both.

Considerations of RCM

Even if their revenue does not reach the threshold, anyone paying tax through the reverse charge system is required to register for GST.
The reverse charge GST must be deposited with the government on the 20th of each month.
Only intrastate transactions will be subject to the reverse charge mechanism.

GST is also levied on any advance payments made for reverse charge supplies. The individual who makes the advances must pay tax on a reverse charge basis.

Who Needs to GST in Reverse Charge Mechanism

According to GST rules, the person supplying the goods must indicate on the tax invoice whether or not tax is payable under the RCM. When making GST payments under RCM, keep the following points in mind:

The ITC on the tax amount paid under RCM can be claimed by the recipient of goods or services only if such goods or services are utilised for business or furthering of business.
When discharging duty under RCM, a composition dealer shall pay tax at the regular rates, not the composition rates. They are also ineligible to claim any input tax credit for taxes paid.
The GST compensation cess can be applied to the RCM tax payable or paid.

Current RCM under GST

In the current situation, the reverse charge process is used in service tax for utilities such as insurance agents, manpower supply, and goods transport agencies, among others. In contrast to the Service Tax, there is no definition of a partial reversal fee. The recipient would pay the full amount of tax on the supply.

Previously, it was difficult to raise service tax from the various unorganized markets, equivalent to goods transportation. The attempt has been made to position the facilities in accordance with the current system, and as a result, compliance and tax revenues can be improved by the reverse charge process.

The reverse fee is now available on all goods and services.

Goods supplied under the Reverse Charge Mechanism

S.No.	Description of supply of goods	Supplier	Recipient
1	Bidi wrapper	Agriculturist	Any Registered Person
2	Cashew Nuts	Agriculturist	Any Registered Person
3	Tobacco Leaves	Agriculturist	Any Registered Person
4	Supply of Lottery	State Government, Union Territory or any local authority	Lottery distributor or selling agent
5	Silk Yarn	A person who manufactures silk yarn.	Any Registered Person
6	Priority Sector Lending Certificate	Any Registered Person	Any Registered Person
7	Raw Cotton	Agriculturist	Any Registered Person
8	Used vehicles, seized & Confiscated goods	Central Govt or State Govt. Union Territory or the local Authority	Any Registered Person

RCM GST List For Services

SL. NO	Provider	Recipient
1	Director of a company or a body corporate	Company or the body corporate
2	Recovery Agent	Banking Company, NBFC or financial institutions
3	Goods transport agency	Casual Taxable person, body corporate, partnership firm, any society, factory, and persons registered under CGST, SGST, IGST Act
4	An insurance agent	Persons carrying on insurance business
5	Individual advocate or firm of advocates	Any business entity

Self-Invoicing

When you buy from an unregistered provider and the purchase is eligible for the GST Reverse Charge Mechanism, the supplier must issue a self-invoice. This is due to the supplier’s inability to issue a GST-compliant invoice, thereby shifting the cost of tax payment to the buyer.

Self-invoice formats are easily found online and can be used for submission. Whether you are a supplier, recipient, or any other type of business person, it is critical to keep these things in mind so that you are prepared for any financial transactions.