REVERSE CHARGE

MECHANISM
MODULE : 3
WHAT IS REVERSE CHARGE

Reverse Charge system is whereby the liability to pay tax though

generally is on the supplier of goods or provider of service, but is
shifted on the recipient of goods or the service. Under the reverse
charge mechanism, the recipient of the goods or service is liable to
pay tax and then take credit of the same.
The reverse charge system is adopted where monitoring and
collection of tax from the person making the supply is difficult and
consumer of such supplies is better placed for payment of taxes.
Under Central Goods and Services (CGST) Act, the term “Reverse
Charge” under section 2(98) has been defined as 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 of CGST Act, or
under sub-section (3) or subsection (4) of section 5 of the
Integrated Goods and Services Tax (IGST) Act.
INCLUSION OF REVERSE CHARGE

• “aggregate turnover” means the aggregate value of all taxable supplies

(excluding the value of inward supplies on which tax is payable by a person
on reverse charge basis), exempt supplies, exports of goods or services or
both and inter-State supplies of persons having the same Permanent Account
Number, to be computed on all India basis but excludes central tax, State tax,
Union territory tax, integrated tax and cess;
• “output tax” in relation to a taxable person, means the tax chargeable under
this Act on taxable supply of goods or services or both made by him or by his
agent but excludes tax payable by him on reverse charge basis;
LEVY AND COLLECTION OF REVERSE CHARGE-
SEC 9(3) & SEC5(3)
• Section 9(3) of CGST Act gives power to the government to notify the categories
of supply of goods or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of goods or services or both. All the provisions of
this Act shall apply to such recipient as if he is the person liable for paying tax in
relation to such supply.
• By virtue of this section, the Government has notified the list of goods and
services on which tax shall be paid on reverse charge basis. The list of goods has
been notified under the following notification:
• Notification No. 04/2017 of Central tax (Rate)
• Notification No. 04/2017 of Integrated Tax (Rate)
• Notification No F.T. of West Bengal Goods and Services Tax
• The list of Services has been notified under the following notifications:
• Notification No. 13/2017 of Central tax (Rate)
• Notification No. 10/2017 of Integrated Tax (Rate)
• Notification No F.T. of West Bengal Goods and Services Tax
LIST OF GOODS UNDER REVERSE CHARGE
 LEVY AND COLLECTION OF REVERSE CHARGE-
SEC 9(4) & SEC5(4)
• As per section 9(4) of CGST Act, tax on supply of taxable goods or services or
both by an unregistered person, to a registered person shall be paid by such
registered person on reverse charge basis. All the provisions of this Act shall
apply to such recipient as if he is the person liable for paying tax in relation to
such supply.
• The Government has exempted the tax on reverse charge basis on Intra-state
supplies received by a registered person from all its unregistered suppliers if the
aggregate value of such supplies in a day does not exceed rupees 5000 under:
• Notification No. 08/2017 of Central Tax (Rate)
• Notification No F.T. of West Bengal Goods and Services Tax Act
LEVY AND COLLECTION OF REVERSE CHARGE- SEC
9(5) & SEC5(5)
 MODE OF PAYMENT OF TAX

• In forward charge mechanism – both Electronic Credit Ledger and Electronic Cash Ledger
can be used to make the tax payment.
• In Reverse charge Mechanism- tax can be paid using Electronic Cash Ledger only.
 There is no provision for partial reverse charge in GST.
 Certain services which previously were subject to reverse charge in service tax
are now under forward charge in GST:
 Works Contract Service
 Manpower Supply
 Rent-a-cab
 Availing of any unregistered supply is now subject to Reverse Charge.
TIME OF SUPPLY IN REVERSE CHARGE- SEC 12(3) & 13(3)
 REGISTRATION UNDER REVERSE CHARGE – SEC
24(III)
 As per section 24(iii), persons who are required to pay tax under reverse charge
are required to get compulsorily registered irrespective of their aggregate
turnover.
 The government has power to grant exemption from tax under section 11 of CGST Act.
By virtue of this section the Government has issued the following notifications:
 Notification Notification No F.T. of West Bengal Goods And Services tax Act
 No. 05/2017 of Central Tax
PROVISION FOR R.C.M

1. Compulsory registration of person liable to pay tax under reverse charge irrespective of
threshold limit.
2. Exemption from payment of GST under threshold limit of Rs. 40 lakhs/Rs. 20 Lakhs turnover
is not applicable.
3. Non-eligibility for composition scheme.
4. Supplies under RCM are not included in aggregate turnover of the assessee.
5. Person liable under RCM shall issue a tax invoice mentioning the fact the supply is received
under reverse charge.
6. No RCM in case of exempted supplies, only taxable supplies