The transaction, in which tax is paid by the recipient of the goods and/or services instead the supplier, falls under reverse charge. Like service tax, there is also a provision of reverse charge mechanism under GST. The Government has specified some goods and/or services in which reverse charge mechanism is applicable.
Registration – The person who does not cross the registration/threshold limit of GST but deals in the goods and/or services fall under the categories, notified by the Government for reverse charge, or is liable to pay tax under reverse charge, shall be liable to register under GST. In other words, a non registered person who is liable to pay tax under reverse charge shall be liable to register under GST.
Section 2(98) has defined reverse charge mechanism-
“reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.
Reverse charge mechanism applicable in two conditions- The provisions of reverse charge levy and collection has mentioned in section 9(3), 9(4) & 9(5).
- The Government may notified, on the recommendations of the council, the categories of goods and/or services on which reverse charge is applicable.
- Where the supply of goods and/or services has been made by the supplier (non-registered) to the recipient (registered person). But if the total value of the supplies received by the registered person from any or all the non- registered persons, in a day does not exceed Rs.5000, then he will not have to pay tax under reverse charge. Click here for the notification for exemption
- The Government may notify, on the recommendation of the council, the services the tax of which intra-state supplies shall be paid by the Electronic commerce operator. In other words, the services provided by electronic commerce operator would attract reverse charge in respect of intra-state supplies of notified services. If the electronic commerce operator does not have a physical presence in the taxable territory then his representative is liable to pay tax but if he has no representative, then he will have to appoint a person who is liable to pay tax on his behalf. Find here notification for notified services by e-commerce operator
In the above cases, the tax is paid by the recipient of the goods and/or services or electronic commerce operator and provisions of this Act is applicable on them as they are the person liable to pay the tax.
Input tax credit-
The tax paid on receipt of goods and/or services under reverse charge shall be eligible for input tax credit. but the liability of tax paid under reverse charge can’t be adjusted through input tax credit.
Tax Invoice – In tax invoice, it should be mentioned that tax payable for supply of goods and/or services under reverse charge basis. Likewise it also mentioned in receipt voucher and refund voucher.
Furnishing of return u/s 38(2) – Every registered person shall furnish all details of goods and/or services on which tax paid under reverse charge mechanism in form GSTR-2.
The last date to file the form GSTR-2 is 15th of the next month from the end of month of which the details are to be filed.
The supplier should also mention in form GSTR-1, the information related to supplies under reverse charge basis.
Payment of tax under reverse charge – The tax payable on reverse charge basis under this act shall be paid by debiting the electronic cash ledger after that electronic liability register shall be credited accordingly.
Advance payment- If any payment has been made in advance regarding reverse charge then GST also payable on such advance.
Maintenance of records- The registered person shall also keep and maintain the records of supplies attracting tax under reverse charge mechanism.
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