The GST regime in India has brought about several changes in the Indian Taxation system. These changes have helped to eliminate the tax's cascading impact and introduced the missing uniformity in the system. Under the GST falls an important mechanism called Reverse Charge Mechanism (RCM). If you are new, you may question the reverse charge mechanism, and this article will talk exactly about the same. So read this article till the end to know what it is!
RCM, also known as Reverse charge mechanism, is a mechanism under GST where the tax liability is borne by the recipient of the goods and services instead of the supplier. In the process, the supplier is not liable to pay the tax, while the recipient becomes responsible for paying the tax, which includes the GST amount, to the government. The reverse charge mechanism in GST applies under certain conditions and only on specified goods and services.
Reverse GST charges apply to certain goods and services under specific conditions. These conditions include:
If the seller is not registered under GST, but the buyer is, then the RCM applies. The buyer has to pay the GST directly and generate the invoice for the goods or services they receive. If it is an interstate transaction, the buyer pays only IGST, while under RCM, the buyer pays SGST and CGST for intrastate transactions.E-commerce
Businesses can use e-commerce operators to sell products or provide services. As per Section 9(5) of the CGST Act, if a service provider utilises an e-commerce operator for specified services, the RCM will apply to the e-commerce operator responsible for paying the GST. The services that fall under this section include:
The Central Board of Indirect Taxes and Customs (CBIC) has listed certain goods and services for which the Reverse Charge is applicable under GST. This online list includes cashew nuts, tobacco leaves, bidi wrappers, lottery, raw cotton, and others.
For goods under reverse charge, the time of supply is determined by the earliest of the following dates.
If it is impossible to identify the supply time for goods under reverse charge, then the date of entry in the recipient's books of account shall be considered the time of supply.
Example:
In this case time of supply will be 25 May 2021
When a supplier provides goods or services under a reverse charge mechanism, the recipient is responsible for paying the GST. The supplier cannot claim an input tax credit for the goods or services provided in such cases. However, the recipient can claim an input tax credit for the GST paid, provided that the goods and services received are used as inputs in their business.
The Reverse Charge Mechanism is an important provision under the GST system that helps ensure compliance and accountability for the payment of taxes. It places the responsibility of paying taxes on the recipient of goods and services in certain specified situations and helps to prevent tax evasion and fraud. Hope this article has helped you understand what reverse charge is in GST.
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If you make purchases from unregistered suppliers that add up to less than Rs. 5,000 daily, you don't have to pay taxes under the Reverse Charge Mechanism (RCM). However, this limit of Rs. 5,000 is the total amount from all unregistered suppliers and not for each individual supplier.
The dealers eligible under the Composition scheme must pay taxes at 5%, 12%, 18%, and 28%, while those not eligible must pay 1% or 5% under the RCM mechanism.
