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Reverse Charge under GST
Under the reverse charge mechanism, the burden of the tax is the recipient of goods or services or both instead on the supplier. In other words, reverse charge means where the recipient of goods or service or both has to discharge the tax liability on his own account. Reverse charge mechanism under GST is a mirror image to the reverse charge mechanism which was under service tax as is applicable for both services as well as goods.
The purpose of introducing the reverse charge under the GST law is to increase tax revenues and tax compliance. Previously, the government was not capable of collecting service tax from several unorganized sectors like transportation of goods. With this introduction, the tax compliances and collections of tax will be increased.
Situations where reverse charge will apply
1. Where an unregistered supplier supplying to a registered person
In such a situation, the registered person has to pay GST on the supply of goods or service or both.
2. Services via an e-commerce operator
Where an operator of e-commerce supplies taxable services then he will be liable to pay GST under reverse charge.
For an instance, Ola Cabs provides services of car renting and hiring. Ola Cabs is liable for the payment of GST and to collect the same from its customers instead of the registered service providers.
Where the operator of the e-commerce (also called aggregator) does not have a physical establishment in the taxable territory, then any person representing such operator of e-commerce for any purpose will be liable for the payment of the tax. If there is no representative of the e-commerce operator, then the e-commerce operator has to appoint a person representing him for the taxing purpose and the representative of the e-commerce operator will be liable to pay tax.
Registration
Every person who is required to pay GST under the reverse charge mechanism has to take GST registration regardless of the threshold limit.
[Threshold: - where the annual turnover in a financial year exceeds Rupees 20lakhs (Rupees 10 lakhs for North eastern and hill states)]
Time of supply for goods under reverse charge
Reverse Charge in the case of supply of goods, the time of supply of the goods shall be the earliest of the following dates—
(a) The payment date, or
(b) The date on which goods are received, or
(c) The date immediately after 30 (THIRTY) days from the date when the invoice was issued by the supplier (in case of service 30 days will be replaced by 60 days)
Where it is not viable or not so possible to determine the time of supply of goods under the above clauses (a), (b) or (c), then the time of supply of goods shall be taken the date of entry in the books of the recipient of such goods.
For clause (a)- the payment date shall be earlier of-
1. The date of the payment is entered in the books by the recipient
OR
2. The date on which the payment has been debited from recipient’s bank account
Example:
1. The payment Date of 15th July 2017
2. The Date on which goods are received 15th May 2017
3. Date of entry in books of receiver 18th May 2017
4. Date of invoice 1st June 2017
Time of supply of goods 15th May 2017
Where due to some reasons the time of supply of goods could not be determined under (a), (b) or (c) then it would be 18th May 2017 i.e., date of entry in books of the receiver.
Time of supply for services under reverse charge
The time of supply under the reverse charge, the time of supply of service shall be the earliest of the following dates—
(a) The payment date
OR
(b) The date immediately after 60 (SIXTY) days from the date when the invoice was issued by the supplier of service (in case of supply of goods 60 days will be replaced by 30 days)
Where it is not viable or not so possible to determine the time of supply of service under the above clauses (a) or (b), then the time of supply of service shall be taken the date of entry in the books of the receiver of such service.
For clause (a) - the payment date shall be earlier of-
1. The date of the payment is entered in the books by the recipient
OR
2. The date on which the payment has been debited from recipient’s bank account
When supplier of service is located outside India
In the case of ‘associated enterprises’, where the location of the supplier of service is outside India, then the time of supply service shall be earlier of the following dates-
1. The date of entry in the books of the receiver of such service, or
2. The payment date
Example:
1. The payment Date 15th July 2017
2. The invoice Date 1st July 2017
3. The Date of entry in books of service receiver 18th July 2017
Time of supply of service 15th May 2017
Where due to some reasons the time of supply of service could not be determined under (a) or (b) then it would be 18th July 2017, i.e., date of entry in books of the receiver.
Input tax credit under reverse charge
Tax paid under reverse charge mechanism will be allowed as input tax credit if such goods or services or both are used, or will be used, for business purpose. The recipient of service (i.e., who pays tax under reverse charge) can avail input tax credit.
Rates of interest- Notification no. 13/2017 Dt. 28/06/17
The Notification no. 13/2017 Dt 28/06/17) ratifies the rates.
This notification shall be applicable from the 1st day of July 2017
Sections Interestp.a.
Section 50(1) - Failure to pay tax dues 18 percent
Section 50(3) – Paid lesser tax or excess Input Tax Credit availed 24 percent
Section 54(12) - Interest on refunds withheld in any appeal later given 6 percent
Section 56 - Interest on delayed refunds 6 percent
Proviso to section 56 - Interest on refunds ordered in an appeal 9 percent
The same notification has also been made under IGST (notification 6).
