Reverse charge mechanism in GST
What is the Reverse charge mechanism in GST?
The reverse charge mechanism in GST is just the opposite of forward charge. It means that tax is payable by the recipient to the account of government. In simple words, recipient deposits the tax directly to government instead of paying it to supplier.
Meaning of Reverse charge Mechanism:
Meaning of Reverse Charge: Section 2(98) of CGST Act provide the definition of reverse charge in GST. This section is reproduced here:
““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”.
Enabling section for reverse charge mechanism in GST:
Section 9(3) of CGST Act The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Section9(4) of CGST Act The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both
In simple words when the concentration of taxable event shifts from supplier to recipient, the levy is also shifted to the recipient. This shift in liability is called a reverse charge mechanism. The liability to deposit the tax to the government is on the recipient and not on the supplier. In forward charge, the supplier collects the tax from the recipient and then deposits it to the account of government. In the reverse charge mechanism, the recipient himself deposit the tax to the account of government.
Notifications issued under the reverse charge mechanism in GST:
Following is the list of notifications covering the reverse charge. It is applicable to both goods and services. These notifications were updated from time to time to update the list. We will also share the updated list of goods and services covered in RCM.
Following are the Notification announced the goods under reverse charge:
- Notification No. 04/2017- Central Tax (Rate) dated 28th June, 2017
- Notification No. 36/2017- Central Tax (Rate) dated 13th October, 2017
- Notification No. 43/2018- Central Tax (Rate) dated 14th November 2017
- Notification No. 11/2018- Central Tax (Rate) dated 28th May, 2018
As for service the government has issued four notifications till date.
Following are the Notification announced the services under reverse charge:
- Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017
- Notification No. 33/2017- Central Tax (Rate) dated 13th October, 2017
- Notification No. 03/2018- Central Tax (Rate) dated 25th January, 2018
Notification No. 15/2018- Central Tax (Rate) dated 26th July, 2018
Updated list of Goods covered under reverse charge mechanism in GST (Updated till 15 October 2018):
|
S. No. |
Tariff item, sub-heading, heading or Chapter |
Description of supply of Goods |
Supplier of goods |
Recipient of supply |
|
(1) |
(2) |
(3) |
(4) |
(5) |
|
1 |
0801 |
Cashew nuts, not shelled or Peeled |
Agriculturist |
Any registered Person |
|
2 |
1404 90 10 |
Bidi wrapper leaves (tendu) |
Agriculturist |
Any registered Person |
|
3 |
2401 |
Tobacco leaves |
Agriculturist |
Any registered Person |
|
4 |
5004 to 5006- |
Silk yarn |
Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn |
Any registered Person |
|
4A |
5201 |
Raw Cotton |
Agriculturist |
Any registered Person |
|
5 |
– |
Supply of lottery. |
State Government, Union Territory or any local authority |
Lottery distributor or selling agent. Explanation.- For the purposes of this entry, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the provisions of sub section 1 of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998). |
|
6 |
Any Chapter |
Used vehicles, seized and confiscated goods, old and used goods, waste and Scrap |
Central Government, State Government, Union territory or a local authority |
Any registered Person |
|
7 |
Any Chapter |
Priority Sector Lending Certificate |
Any registered Person |
Any registered Person |
Updated list of services covered in reverse charge mechanism in GST (Updated till 15th October 2018)
|
S. No. |
Applied by |
Category of Supply of Services |
Supplier of service |
Recipient of Service |
|
1. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to- (a) any factory registered under or governed by the Factories Act, 1948(63 of 1948);or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or |
Goods Transport Agency (GTA) |
(a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or
|
|
(d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person. |
(d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person; located in the taxable territory. |
|
2. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity. |
An individual advocate including a senior advocate or firm of advocates. |
Any business entity located in the taxable territory. |
|
3. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services supplied by an arbitral tribunal to a business entity. |
An arbitral tribunal. |
Any business entity located in the taxable territory. |
|
4. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services provided by way of sponsorship to any body corporate or partnership firm. |
Any person. |
Any body corporate or partnership firm located in the taxable territory. |
|
5. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services supplied by the Central Government, State Government, Union territory or local authority to a business 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; |
Central Government, State Government, Union territory or local authority. |
Any business entity located in the taxable territory. |
|
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. |
||||
|
5A. |
Notification No. 03/2018- Central Tax (Rate) dated 25th January, 2018 |
Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017). |
Central Government, State Government, Union territory or local Authority |
Any person registered under the Central Goods and Services Tax Act, 2017. |
|
6. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services supplied by a director of a company or a body corporate to the said company or the body corporate. |
A director of a company or a body corporate |
The company or a body corporate located in the taxable territory. |
|
7. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services supplied by an insurance agent to any person carrying on insurance business. |
An insurance agent |
Any person carrying on insurance business, located in the taxable territory. |
|
8. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company. |
A recovery agent |
A banking company or a financial institution or a non-banking financial company, located in the taxable territory. |
|
9. |
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 |
Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like. |
Author or music composer, photographer, artist, or the like |
Publisher, music company, producer or the like, located in the taxable territory. |
|
10. |
Notification No. 33/2018- Central Tax (Rate) dated 13th October, 2017 |
Supply of services by the members of Overseeing Committee to Reserve Bank of India |
Members of Overseeing Committee constituted by the Reserve Bank of India |
Reserve Bank of India. |
|
11. |
Notification No. 15/2018- Central Tax (Rate) dated 28th June, 2018 |
Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs). |
Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm. |
A banking company or a non-banking financial company, located in the taxable territory. |
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CA Shafaly Girdharwal
CA
New Delhi, India
CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.
