Reverse Charge Under GST: Payment of GST is generally made by the supplier or the seller of the goods or services. But in Reverse Charge, GST payment is made by the person who is the purchaser of goods or services. It means the person who is liable to pay the tax gets reversed. It is referred Reverse Charge Mechanism (RCM). E-commerce, like the services made by Amazon, or Uber, is the best illustration of Reverse Charge.
Cases Where Reverse Charge Mechanism Is Applicable
Reverse Charge is applicable in two cases:
Reverse Charge applies to the supply of certain goods or services as specified by CBEC [section 9(3)]: When a person who is unregistered sells goods or supplies services to a person registered under GST, in that case, Reverse Charge is applicable. It means that the receiver has to pay GST to the Government directly. The registered dealer needs to self-invoice his/her purchases. For the buyer to make interstate purchases, he needs to pay IGST. It is also applicable to dealers registered under the Composition Scheme of GST [section 9(4)].
Requirements for Registration: A person who supplies goods and services only on which payment of GST is made on a Reverse Charge basis, then registration of such person is not required even if the specified limits of turnover are exceeded. For example, a farmer who is engaged with the cultivation of cashew nuts and sells it to a trader is liable for the payment of GST based on the Reverse Charge Mechanism. The farmer is not liable to register under GST if he is not involved with trading any other taxable goods.
Purchase Of Specific Product Or Services
Reverse Charge is charged explicitly for some services and products. The receiver is liable to pay the reverse Charge even when the seller is registered under GST, subject to conditions specified for such specific products and services.
The person who is liable for the tax paid under Reverse Charge Mechanism has to register first regardless of the threshold limit.
The seller of such products or services covered under this condition has to mention that GST payment is based on Reverse charges on their tax invoices.
Example: A trader registered under GST takes services of Goods Transport Agency (GTA) for ₹15,000. This service falls under the reverse charge list. As a result, the trader has to pay tax @ 18% on ₹15,000 based on Reverse Charge Mechanism. However, there will be no increase in net tax liability as the amount of GST paid is allowed in the same month as an Input tax credit.
At the end of the article, a list of such services and products is provided.
Purchase Of Any Goods/Services From Unregistered Personstrong
When an unregistered person sells any goods or services to a person registered under GST, then the payment of GST has to be made by the registered person on a Reverse Charge basis. When the registered person purchases goods from other states, he has to pay IGST.
There is an exemption of ₹5,000 per day provided by the Government. It means that if a purchase of less than ₹5,000 is made in a day from a person who is not registered under GST, then the person is not liable to pay tax under Reverse Charge. The limit of ₹5,000 is applicable as a total from all suppliers and not from a single supplier. The person registered under GST has to self-invoice the purchases made.
GST Rate
The tax rate already specified on such goods or services is to be used as a tax rate. When Reverse Charge is applicable, GST compensation cess is to be applied. If the purchase of such goods and services falls under exempted or zero percent tax slab, then no tax will be payable under Reverse Charge.
Dealers under Composition Scheme are liable for the payment of Reverse charges at standard tax rates (5%, 12%, 18%, and 28%). The dealer will not be able to pay at composition rates (1% or 5%).
Payment Of Input Tax Credit Of GST Under Reverse Charge Mechanism
An input tax credit means that while paying output tax, a person can reduce the tax that is already paid on inputs. It includes the amount paid as IGST on imports and the amount paid under Reverse Charge. It is to be noted that credit allowed to such business is under normal circumstances. For example, dealers under the composition scheme won’t be able to take input tax credit under normal circumstances. Therefore they are prohibited from taking input tax credit on the amount of GST paid under Reverse Charge.
The amount of GST to be paid under Reverse Charge should be in cash only. It cannot be paid from the available input tax credit. The amount of reserve charge is the amount of GST that is to be paid in that period.
GST is levied on the advance amount that is paid on a Reverse Charge basis. The person is liable to pay tax under a reverse charge basis for advance payment. (Mentioned provision is currently postponed)
Reverse Charge Accounting Entries
Entries To Be Made While Purchasing Such Goods Or Services:
| Particulars | Debit (Dr) / Credit (Cr) | |
| Purchase A/c | Dr | |
| Input SGST A/c | Dr | |
| Input CGST A/c | Dr | |
| To Creditor A/c | Cr | |
| To Output SGST Reverse Charge Mechanism A/c | Cr | |
| To Output CGST Reverse Charge Mechanism A/c | Cr | |
Specific accounts will get debited on the purchase of any asset or any expenses made. Output SGST Reverse Charge Mechanism A/c is used instead of normal Output SGST A/c to distinguish both taxes. It is because taxes charged under Reverse Charge Mechanism cannot be adjusted in opposition to input taxes, and it is to be paid in cash only.
Entries To Be Made While Making Payment Of GST
| Particulars | Debit (Dr) / Credit (Cr) | |
| Output SGST Reverse Charge Mechanism A/c | Dr | |
| Output CGST Reverse Charge Mechanism A/c | Dr | |
| To Cash/Bank A/c | Cr | |
Self-Invoicing Under Reverse Charge Mechanism
A person registered under GST is liable for the payment of tax under reverse Charge to purchase products or services on which amount of tax falls under reverse charge mechanism and purchase of products or services from a person who is not registered under GST. In such cases, the person has to issue an invoice for the products or service received by him/her. The registered person, while making payment to the supplier for such supplies, has to issue a payment voucher.
There isn’t any precise format mentioned for self-invoicing. The structure that the registered person uses for invoicing can be used with specific changes to the heading.
Tax Payment Under Reverse Charge Mechanism On The Basis Of Supply Time:
The specified time to deposit GST with the Government is 20 days from the month-end in which services were dispensed. Therefore it is essential to ascertain the supply time to levy taxes based on Reverse charges under GST.
Payment Date
For the purpose of calculation of Date of Supply, the Date of Payment shall be earlier among the following:-
- The date on which the entry of payment is made on the recipient’s books, or
- The date on which the amount is debited from his bank account
In Case Of Goods Time Of Supply
Under Reverse Charge, the supply time would be the earliest among the following:
- The date of payment, or
- The date of receipt of goods, or
- The immediate date after 30 days from the date of issue by the supplier.
If the time of supply cannot be determined under (a), (b) or (c) above, then in the recipient’s books of account, the date of entry shall be the time of supply.
In Case Of Services Time Of Supply
Under Reverse Charge, the supply time would be the earliest among the following:
- The payment date, or
- The immediate date after 60 days from the date of issue of invoice by the supplier
If the time of supply cannot be determined under (a) or (b) above, then the date of entry in the recipient’s books of accounts shall be the time of supply.
GST Payable Under Reverse Charge for The Following List Of Goods
| Sl. No |
Tariff item, sub-heading, heading or Chapter |
Description of supply of Goods |
Supplier of goods |
Recipient of supply |
| 1. | 2401 | Tobacco leaves | Agriculturist | Any person registered under GST |
| 2. | 1404 90 10 | Leaves for Bidi wrapping (tendu) |
Agriculturist | Any person registered under GST |
| 3. | 0801 | Cashew nuts, not peeled or shelled |
Agriculturist | Any person registered under GST |
| 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 person registered under GST |
| 5. | – | Supply of lottery | Any local authority, State Government or Union Territory | A selling agent or lottery distributor. Explanation.- For the purposes of this entry, selling agent or lottery distributor 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 subsection 1 of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998). |
GST Payable Under Reverse Charge for the following List of Services
| Sl. No. | Service | Provider of service | Rate of Service tax payable by the service provider | Rate of service tax payable by any person other than the service provider | Recipient of Service |
| 1. | Taxable services agreed to be provided or provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than the non-assessee online recipient (OIDAR) | Any person located in a non-taxable territory | Nil | 100% | Any person from the taxable territory other than the non-assessee recipient of any business |
| 2. | Services agreed to be provided or provided by a goods transport agency (GTA) to transport goods by road. | Goods Transport Agency (GTA) | Nil | 100% | (a) Any factory governed by or registered under ‘The Factories Act, 1948’; (b)Any society registered under the ‘Societies Registration Act, 1860’ or under any other law for the time being in effect to any Indian part; (c) Any Co-Operative society established under or by any law (d)any person who is registered under the following Act: SGST/UTGST/CGST; (e) Any corporate body established, under or by law; (f) Any partnership firm, including the association of persons whether registered or not under any law; (g) Person taxable naturally |
| 3. | Services agreed to be provided or provided by an individual advocate or firm of advocates through legal services, directly or indirectly. | An individual advocate or firm of advocates | Nil | 100% | Any Business institution. |
| 4. | Services agreed to be provided or provided by an arbitral tribunal | An arbitral tribunal | Nil | 100% | Any Business institution. |
| 5. | Sponsorship services | Any person | Nil | 100% | Any person |
| 6. | Services agreed to be provided or provided by Government or local authority excluding (1) renting of fixed property, (2)Specified are as follows- (i)Services by the Department of Posts in the form of speed post, express parcel post, life insurance, and agency services provided to a person other than Government; (ii)Services concerning an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers |
Government or local authority | Nil | 100% | Any business entity. |
| 7. | Services agreed to be provided or provided by an insurance agent to any person carrying on insurance business. | An insurance agent | Nil | 100% | Any person carrying on insurance business. |
| 8. | Services agreed to be provided or provided by a company director or corporate body to the said company or the corporate body; | A company director or a corporate body | Nil | 100% | A company or a body corporate. |
| 9. | Services in the form of goods transportation by a vessel from a place outside India up to the Indian customs clearance station | A person from a non-taxable territory to a person located in non-taxable territory | Nil | 100% | Importer as defined under clause (26) of section 2 of the Customs Act, 1962. |
| 10. | Services provided or agreed to be provided by a recovery agent to a financial institution, or a banking company, or a non-banking financial company | A recovery agent | Nil | 100% | A financial institution, or banking company, or a non-banking financial company. |
| 11. | Transfer or permitting the enjoyment or use of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 concerning dramatic, original literary, musical or artistic works | Author or music composer, photographer, artist, etc | Nil | 100% | Publisher, Music company, Producer |
| 12. | Radio taxi or Passenger Transport Services provided through electronic commerce operator. | A taxi driver or Rent a cab operator | Nil | 100% by Electronic Commerce Operator | Any person |