CA Pratik S Shah

Chartered Accountant

REVERSE CHARGE MECHANISM UNDER GST

R
everse Charge Mechanism means that GST shall be paid and deposited with the Government by
recipient of Goods / Services and not by Supplier of Goods / Services.
As per normal mechanism of levy of GST, the Receiver of Goods / Services pays GST to the Supplier
and such supplier then deposits GST with the Government. However as per provisions of Reverse Charge
Mechanism, GST is to be paid and deposited by recipient with Government on behalf of supplier of service.

Reverse Charge on Goods under Section 9 (3)

Sr No Description of Goods Supplier of Goods Recipient of Supply

1 Cashew Nuts, not shelled or peeled Agriculturist Any Registered Person
2 Bidi Wrapper Leaves (Tendu) Agriculturist Any Registered Person
3 Tobacco Leaves Agriculturist Any Registered Person
4 Silk Yarn Any person who Any Registered Person
manufactures Silk Yarn
from Silk Cocoons for
Supply of Silk Yarn
5 Supply of Lottery State Govt, Local Authority Lottery Distributer or
Selling Agent

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Reverse Charge on Services under Section 9 (3)

Sr No Description of Services Supplier of Services Recipient of Services

1 Services provided or agreed Goods Transport Agency a) Any person registered under
to be provided by a goods (GTA) CGST/SGST/UTGST/ IGST
transport agency (GTA) in Act;
respect of transportation of b) Anybody corporate
goods by road established, by or under any
law; or
c) Any partnership firm whether
registered or not under any
law including association of
persons.
d) Casual taxable person
e) Co-operative Society under
any Law
f) Any factory registered under
or governed by the Factories
Act,1948
2 Services provided or agreed to An individual Advocate Any Business Entity located in
be provided by an individual or Firm of Advocates Taxable Territory
advocate or firm of advocates
by way of legal services,
directly or indirectly
3 Services provided or agreed An Arbitrate Tribunal Any Business Entity located in
to be provided by an arbitral Taxable Territory.
tribunal
4 Sponsorship Services Any Person Any Body Corporate or
Partnership Firm located in
Taxable Territory
5 Services supplied by the Central Government, Any business entity located in the
Central Government, State State Government, taxable territory.
Government, Union territory Union territory or local
or local authority to a business authority
entity excluding, –
(1) renting of immovable
property, and
(2) services specified below-
(i)services by the
Department of Posts by
way of speed post, express
parcel post, life insurance,
and agency services
provided to a person other
than Central Government,
State Government or
Union territory or local
authority;

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 5A Services supplied by the Central Government, Any Person registered under
Central Government, State State Government, Central Goods and Service Tax
Government, Union territory Union territory or Act 2017.
or local authority by way of local authority
renting of immovable property
to a person registered under
the Central Goods and Services
Tax Act, 2017 (12 of 2017).
** Added with effect from
25.01.2018
5B Supply of Services by Any Any Person Promoter / Builder / Developer
Person by way of “Transfer of
Development Rights (T.D.R.)
or Floor Space Index (F.S.I.)”
for construction of Residential
Property
5C Supply of Services by way of Any Person Promoter / Builder / Developer
“LONG TERM LEASE OF LAND
(30 YEARS OR MORE)”, by any
person against consideration
in form of Upfront Premium or
Periodic Rent.
6 Services supplied by a director A director of a company A company or a body corporate
of a company or a body or a body corporate located in the taxable territory
corporate to the said company
or the body corporate.
7 Services provided or agreed to An insurance agent Any person carrying on
be provided by an insurance insurance business.
agent to any person carrying
on insurance business
8 Services provided or agreed A Recovery Agent A banking company or a financial
to be provided by a recovery institution or a nonbanking
agent to a banking company or financial company.
a financial institution or a non-
banking financial company
9 Supply of services by an Author or music Publisher, music company,
author, music composer, composer, photograph producer or the like, located in
photographer, artist or her, artist, or the like the taxable territory
the like by way of transfer
or permitting the use or
enjoyment of a copyright
covered under section 13(1)
(a) of the Copyright Act, 1957
relating to original literary,
dramatic, musical or artistic
works to a publisher, music
company, producer or the like
10 Supply of services by the Members of Overseeing Reserve Bank of India
members of Overseeing Committee constituted
Committee to Reserve Bank of by the Reserve Bank of
India India

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 11 Services supplied by individual Individual Direct Selling A banking company or a non-
Direct Selling Agents ( DSAs) Agents (DSAs) other banking financial company,
other than a body corporate than a body corporate, located in the taxable territory
partnership or limited liability partnership or limited
partnership firm to bank liability partnership firm.
or non-banking financial
company ( NBFCs) Effective
from 27.7.2018)
12 Services provided by business Business facilitator(BF) A banking company, located in
facilitator (BF) to a banking the taxable territory.
company
13 Services provided by an agent An agent of business A business correspondent,
of Business correspondent correspondent (BC). located in the taxable territory.
(BC) to business correspondent
(BC).
14 Security Services (services Any person other than a A registered person, Located in
provided by way of supply of body corporate. the “taxable territory.”
security personnel) provided
to a registered person:

Time of Supply of Goods / Services under Reverse Charge Mechanism

Time of Supply of Goods under RCM Time of Supply of Services under RCM
Earliest of the following Earliest of the following
a) Date of Receipt of Goods a) Date of Payment
b) Date of Payment b) Date immediately after 60 days from date of
issue of invoice by supplier.
c) Date immediately after 30 days from date of
issue of Invoice by supplier

Input Tax Credit in Reverse Charge Mechanism

• The Recipient is eligible avail Input Tax credit on the Tax amount that is paid under reverse charge on
goods and services.
• The only condition is that the goods and services are used or will be used for business or furtherance
of business.
• Unfortunately, ITC cannot be used to pay output tax, which means that payment mode is only through
cash under reverse charge.
Other Miscellaneous Points
• Taxable person paying tax under reverse charge is required to issue self-invoice.
• Advance payments are subject to Reverse charge mechanism.
• Unlike Service Tax, there is no concept of partial reverse charge. The recipient has to pay 100% tax on
the supply.
• For a Composite Dealer, if he falls under Reverse Charge Mechanism then the dealer is ineligible to
claim any credit of tax paid.
Conclusion
Reverse charge mechanism is not a new concept. We were already dealing with this in the service tax. But
imposing a 100% reverse charge is definitely a big change. There are both pros and cons of this reverse
charge mechanism but then no accurate conclusion can be drawn currently as to how the society will be
impacted by its imposition. On one hand it will definitely be burdensome for the small supply receivers,
but on the other hand, it will increase tax compliance for the country as a whole and would increase
transparency.

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