GST

About the Reverse Charge Mechanism (RCM) under GST:

Section 2 (98 ) of CGST Act 2017 :

• 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.

Persons to register for GST under RCM :

• All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold limit.

Threshold : Turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs for North eastern and hill states)

Situations Where The Reverse Charge Will Apply :

• Unregistered dealer selling to a registered dealer.
• Services through an e-commerce operator.
• On the list of services issued by the government for which reverse charge is applicable.

Time of Supply for Goods Under Reverse Charge - Section 12(3):

In case of reverse charge, the time of supply shall be :

(a) the date of receipt of goods OR

(b) the date of payment OR

(c) the date immediately after 30 days from the date of issue of invoice by the supplier

Whichever is earlier.

If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient

Example:

1. Date of receipt of goods 15th June 2018

2. Date of payment 15th August 2018

3. Date of invoice 1st July 2018

4. Date of entry in books of receiver 18th June 2018

Time of supply of goods 15th June 2018

If for some reason time of supply could not be determined supply under (1), (2) or (3) then it would be 18th June 2018 i.e. date of entry.

Time of Supply for Services under Reverse Charge - Section 13 (3) :

In case of reverse charge, the time of supply shall be :

(a) The date of payment OR

(b) The date immediately after 60 days from the date of issue of invoice by the supplier

Whichever is earlier.

If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.

Example :

1. Date of payment 15th July 2018

2. Date of invoice 1st July 2018

3. Date of entry in books of receiver 18th July 2018

Time of supply of service 15th July 2018

If for some reason time of supply could not be determined supply under (a) or (b) then it would be 18th July 2018 i.e., date of entry in books.

When supplier is located outside India :

In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be,

(a) The date of payment OR

(b) The date of entry in the books of account of the receiver

whichever is earlier.

• It has been further explained that,

“the date on which the payment is made” shall be the date on which

the payment is entered in the books of accounts of the recipient or

the date on which the payment is debited in his bank account, whichever is earlier.

Input Tax Credit (ITC) under Reverse Charge Mechanism (RCM) :

• The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services.
• Condition : The goods and services are used or will be used for business or furtherance of business.
• Note that, ITC cannot be used to pay output tax, which means that payment mode is only through cash under reverse charge.

List of Services on which RCM is applicable :

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