How to be Prepared for the Reverse Charge Mechanism

Narendra Kumar

18 Jul, 2019

Reverse Charge Mechanism?

Reverse charge is a mechanism whereby the recipient of the services, or goods or both is charged instead of the supplier. Except for the reverse charge mechanism usually, the supplier of goods or services pays the tax on supply of goods/services/both. In Reverse Charge, the receiver becomes liable to pay the tax, which results in reverse changeability.

Applicability:

Case 1: Where the supply is made from unregistered dealer to a registered dealer (UR to R)

In the case where an unregistered dealer supply good and /or services to a registered dealer in that case reverse charge are charged whereby the applicable GST on such goods and/or services are required to be paid directly by the receiver to the Government instead of the supplier.

That is in this case the registered dealer who has received the goods/services from the unregistered dealer is required to pay GST under Reverse Charge Mechanism has to do self-invoicing for the purchases made.

What to be paid as GST tax by the registered dealer?

1. For Inter-state purchases:

The buyer (i.e. the registered dealer) has to pay IGST.

2. For Intra-state purchased:

The buyer has to pay CGST and SGST has to be paid.

Case 2: Where the supply of Services is through an e-commerce operator

If services are supplied by an e-commerce operator, then, in that case, the Reverse Charge Mechanism will be applicable to the e-commerce operator. The e-operator is liable to pay GST.

There are cases wherein the e-commerce operators do not operate on physical presence basis in the taxable territory; in such case, the person representing such e-commerce operator for it shall be liable to pay tax. In cases where there is no representative, the operator will appoint a representative who will be liable to pay GST.

Case3: When the goods have been supplied which are specified by CBEC

There is a list of goods and services on which reverse charge is applicable which has been issued by CBEC in that case reverse charge is applied.

Determination of Time of supply:

Case 1: How to determine the Time of Supply in case of Goods?

The time of supply will be the earliest of the following dates:

1. the date of receipt of goods
2. the date of payment
3. From the date of issue of an invoice by the supplier, the date immediately after 30 days.

In cases, there is a situation whereby it is not possible to determine the time of supply, in that case, the time of supply shall be the date of entry in the books of account of the recipient.

Case 2: How to determine the Time of Supply in case of Services?

The time of supply shall be the earliest of the following dates:

• The date of payment
• From the date of issue of an invoice by the supplier, the date immediately after 60 days.

In cases, there is a situation whereby it is not possible to determine the time of supply, in that case, the time of supply shall be the date of entry in the books of account of the recipient.

Self Invoicing

Self-invoicing is required to be done by the registered dealer who has purchased good/ and services from an unregistered supplier AND such purchase of goods or services falls under list goods/services of reverse charge.

The reverse charge, in this case, is required to be paid by the purchaser as the supplier of goods/services is not a registered dealer and cannot issue a GST-compliant invoice. Hence, the self-invoicing by the purchaser of the goods/services become necessary.

Details required to be filled in self-invoicing are as given below:

1. Serial number:

As it is self-invoicing and the registered dealer has not received any invoice number from the Supplier of goods/services, in that case, enter the serial number of the bill into the field marked ‘Invoice Serial Number’ create your own new one, add a serial number on your own. The registered dealer shall create and maintain a serial number series for reverse charge bills, for easier invoicing.

2.  Invoice date:

Enter the ‘Invoice Date’ based on time of supply calculated in accordance with the rules and regulation made in GST and Enter any detail such as the order number etc., into the field marked ‘Reference Number’

3. Under ‘Due Date’, mention the date when payment is required to be made to the supplier for the purchase (Optional)
4. Vendor Name:

Enter the supplier’s name irrespective of the fact that invoice is raised by the purchaser as this is self-invoicing under reverse charge.

5. If the vendor’s name is not set already, it can be added as a new vendor.
6. Put in the details of goods/ services purchased
7. Select reverse charge from the drop-down under ‘Advanced Settings’.
8. Now, fill in the details asked for appearing on the screen.
9. Save the form and submit.

Certain Rules in GST you Need to know are Given as below:

1. All the taxpayers are required to pay tax under reverse charge as applicable to them and shall have to register themselves for GST and the threshold of Rs 20 Lakhs is not applicable to them.
2. Tax paid on a reverse charge is available for the input tax credit in cases where such goods and/or services are used or will be used, for business. That is the reverse charge payer can avail input tax credit.

Note that: According to the reverse charge mechanism under GST new list introduced the Priority Sector Lending Certificate by a GST registered person to another registered person shall now fall under Reverse charge via CGST Rate Notification.

Also, Read

• GST Reconciliation Statement Form GSTR 9C
• GSTR-9 : GST Annual Return Filing Form, Eligibility and Due Date
• What are the types of GST Return & due dates filing