Goods and Service tax, popularly known, as GST is the new tax regime that has replaced many of the current indirect taxes and
has remove the complexities of it. In India, earlier we had the tax system which was origin-based, and now under GST it is destination-based tax system.
It will replace a total of 17 taxes such as Service
Tax, VAT, Excise Duty, Counter Veiling Duty (CVD), SAD, Entry Tax, Purchase Tax etc. Central Government has enacted 4 GST
Bills until now,
to get GST implemented to the whole nation.
- CGST (Central GST)
- IGST (Integrated GST)
- UTGST (Union territory GST)
- Bill to compensate states.
A well-designed GST has not only eliminate cascading effect and double taxation but has also smoothened the functioning of
the business. It is projected that India will have an increased growth by 2% and will boost revenues for the government
because it will affect both manufacturing and service sector.
India is a country where there are organized, partly organized and unorganized sectors, which require continuous monitoring
for better tax compliance and coverage. To carry out this function smoothly, the government had introduced
REVERSE CHARGE MECHANISM.
Earlier, the reverse charge concept was only there in Service Tax and was applicable to only services and not for goods. Under GST Law, Government have notified
certain services and goods, on which GST is payable on the reverse charge basis.
What is Reverse Charge in GST?
It is a new concept that is introduced in GST in India, to increase tax revenues, coverage and compliance from partly or unorganized sectors.
Earlier goods were exempt from this scheme, now the collection of GST will increase tremendously.
In GST, the supplier will be liable to collect tax on goods and services provided. But the central government has the power to notify categories of supplies against which service recipient has to discharge the tax liability. Hence, all the provisions of the Act will now be applicable to the recipient of such goods or services as if he is the supplier of such goods or services.
When a person becomes liable to pay tax on the reverse charge, certain provisions like threshold exemption, time of supply, availing of input credit changes. There is a threshold limit for turnover aggregating to Rs.20 Lakhs for registration for normal tax payers but under reverse charge, there is no such limit. The person has to be registered under GST irrespective of the aggregate limit.
Also read about GST composition scheme.
Situations Where The Reverse Charge Will Apply
- If the registered dealer is buying goods or services from an unregistered dealer then, the registered dealer will be liable to pay tax on supply.
- All other categories of supplies will be notified by Central or State government that will fall under reverse charge.
Time Of Supply For Goods Under Reverse Charge
Provisions are different under reverse charge than normal scenario. Time of supply will be the earliest of the below dates:
- When the goods are received i.e. the date of receipt.
- When the amount is paid i.e. the date of payment.
- Date of payment shall be earliest of ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’
- The date immediately after 30 days from the date the supplier issues invoice.
If the assessee fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient enters in his books of account.
For Example:
Date of receipt of goods – 16th May 2017
Date of Payment – 16th July 2017
Date of Invoice – 1st June 2017
Date of Entry in books by recipient – 18th May 2017
Thus, Time of supply will be – 16th May 2017. If by any chance time of supply could not be determined under mentioned clauses then it will be 18th May 2017, i.e. Date of entry.
Time of Supply for Services Under Reverse Charge
Similarly, provisions are different for services under reverse charge. Time of supply will be the earliest of the below dates:
- When the amount is paid i.e. the date of payment OR
- Date of payment shall be earliest of – ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.
- The date immediately after 30 days from the date the supplier issues invoice.
If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient of service enters in his books of account.
For Example:
Date of Payment – 16th June 2017
Date of Invoice – 1st July 2017
Date of Entry in books by recipient – 18th June 2017
Thus, Time of supply will be – 16th June 2017. If by any chance, time of supply could not be determined under mentioned clauses then it will be 18th June 2017, i.e. Date of entry.
If the supplier is located outside India, then the time of supply shall be the earliest of – ‘When the amount is paid i.e. the date of payment’ OR ‘When the recipient records the payment in his books of account’.
Input Tax Credit:
The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services. The only condition is that the goods and services are used or will be used for business or furtherance of business. Unfortunately, ITC cannot be used to pay output tax, which means that payment mode is only through cash under reverse charge.
Self Invoice:
The taxable person paying tax under reverse charge is requried to issue self-invoice.
E-commerce Operator
Below is the list of services notified by the Government on which tax is to be paid by the e-commerce operator,
- Transportation of Passengers by Radio-tax, Motor-cab, Maxi cab and Motor Cycle
- Services of Short Term Accommodation
- Services by way of housekeeping, such as plumbing, carpentering and etc
In the above case E-commerce operator is neither the supplier nor the receiver of service, he is only providing the platform to connect supplier and recipient. Thus the tax paid by the e-commerce operator on behalf of the supplier are not covered reverse charge mechanism.
Miscellaneous Points for Attention:
- If the composite dealer falls under reverse charge mechanism then the dealer is ineligible to claim any credit of tax paid. Along with the dealer is liable to pay tax at normal rates applicable to such supply and not the rate applicable for composition scheme.
- Even advance payments are subject to Reverse charge mechanism.
- Unlike Service Tax, there is no concept of partial reverse charge. The recipient has to pay 100% tax on the supply.
- As per the proposed Bill, GST compensation cess will be levied and collected at a date which will be notified by the government at a later date.
Below is a list of goods and services covered under reverse charge
These lists are notified by the government. Under reverse charge, the recipient is liable to pay GST but in case if the recipient is located in the non-taxable territory then, the tax will be payable by the service provider of goods/service
| Service Provider | Service Receiver | Other Information |
| Goods Transport Agency |
The person mentioned above should be located in taxable territory
|
|
| Legal Services
Services supplied by
by way of representational services before court, tribunal, authority. |
Business entity whose turnover in preceding financial year was more than 20 lakhs. | The below-mentioned services are exempted under GST if they are provided to –
|
| Services by Arbitral Tribunal | Business entity, whose turnover in preceding financial year is exceeding Rs 20 Lakhs and are located in taxable territory | The below-mentioned services are exempted under GST if they are provided to-
|
| Sponsorship services | Any body corporate or partnership firm | |
| Government or Local Authority | Business entity located in taxable territory | For the services mentioned below service provider is liable to pay GST –
|
| Services supplied by a director of a company or a body corporate |
|
|
| Insurance agent | Any person carrying on insurance business | |
| Recovery Agent |
|
|
| Author, music composer, photographer, artists | Publisher, Music company, Producer | |
| Members of Overseeing Committee | Reserve Bank of India |
Below is the list of Goods on which GST will be paid on recipient on reverse charge
| Supplier | Recipient |
Supplier of goods is agriculturist supplying-
|
Recipient is the registered person |
| Manufactures silk yarn from raw silk or silk warm cocoons for the supply of silk yarns | Recipient is the registered person |
| The state government, the union territory or any local authority | Recipient of supply is lottery distributor or selling agent. |
| Used vehicles, seized and confiscated goods, old and used goods, waste and scrap is Central Government, State Government, Union territory or a local authority | Recipient is the registered person |
GST is a completely new revolution to tax regime and has already taken India by storm. With many new concepts such as Reverse Charge Mechanism, Composition Scheme, Mixed supply, it will be definitely challenging for every individual or body corporate. The transition of business and application of GST is the next big thing that every person has to be ready for.
How Can You Comply Better With GST
Even if you have a CA to look after your financial accounting, its advisable to implement a good GST compliant accounting software which should simplify the whole process.
ProfitBooks is one such accounting software which not only helps you create GST invoices, track purchases, manage inventory but also helps you to file GST returns online with just few clicks.
Its trusted by thousands of businesses and CAs across India. It takes just 2 minutes to signup.
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Also Read:
Important GST concepts every business should know
Types of GST returns
Importance of place of supply in GST
12 Inventory management techniques to cut losses
Top 12 FREE Software For Small Businesses
I sell products online on various marketplaces. The situation is as follows :
Suppose a product is sold for 1,000. Markeplace pays me approx. 700 in company account after it’s delivered to customer. And the commission of 300 deducted by markeplace includes the GST on their commission & shipping too. So, what I am doing till now is filing tax on the actual amount I receive in my account (Inclusive of tax) for sale of that product i.e. I pay 126 (18% of 700) as tax for the amount I received from marketplace.
1- Am I doing the correct thing ?
2- Why should I pay the tax for invoice of 1,000 which is issued by marketplace to customer when I don’t receive only 700 in my account finally ?
4- I personally do not want my funds to be locked just hoping that the marketplace will also update details and in turn I will suffer by paying the GST of his commission too if I pay GST 18% on 1,000 !
3- As payment from marketplaces are generally released every 7 – 15 days, then how do we bill them for filing GST ? I generally have to create new invoice of the actual amount that I receive in account every week.
PLEASE HELP !!!
HI ITS GREAT TO SEE YOU HELPING PEOPLE IN WEBSITES
I HERE ASKING YOU A HELP REGARDING THE BELOW QUERY
.
I AM REGISTERED GST PERSON HAVING MY BUSINESS IN CHENNAI AND I HAVE PURCHASED SOME GOODS FROM ANOTHER REGISTERED PERSON IN DELHI,
GOODS HAVE BEEN TRANSPORTED FROM DELHI BY ROAD MEANS BY WAY OF TRANSPORT AGENCY WHO HAVE CHARGED ME RS.910
NOW MY QUESTION IS DO I HAVE TO PAY ANY TAXES ON THIS AMOUNT THAT IS PAID BY ME ?
PLEASE HELP ME RESOLVING MY PROBLEM
THANKS,
REGARDS,
AASHISH JAIN.
please share invoice format “on reverse charge base” on my Eail Id [email protected]
please send RCM invoice format on “[email protected]”
Interest to be paid on tax liabilities both for supplies attracting reverse charge as well as other than reverse charge
What is the meaning ..
Sir, My uncle has a property which is given on rent @ 50,000/- per month for commercial purpose and the tenant had deduct TDS @10% and GST @18%. My uncle can claim back the TDS through the income tax filling but how to claim back the GST which is already deducted by Tenant under RCM. My uncle total taxable service is Rs 6,00,000/- so he don’t need to register under GST but how to claim back the GST which is deducted under RCM by tenant?
under composition scheme is Vendor Applicable for RCM or Not
please share invoice format “on RCM” to my mail id – [email protected]
is reverse charge would be payable on the freight of exempted goods
if I purchase form a vendor under composition scheme whether we liable to pay GST in RCM.
Hello Sir,
I Want to know one thing
I Purchase a Cement 1bg cost Rs. 328 Excluding freight
I Sale the cement 1bg cost Rs. 325
Can i Bill the Cement 1bg cost Rs. 315+Rs 10(Freight) or it will lead to under valuation
Hello Sir…
we are a registered dealer…n recently we have purchased a stationery item from the Registered delaer …
We have passed the Journal Voucher for the same & payment entry too…but my query is the tax which have shown under duties & taxes are eligible for Input Tax Credit ?? and if yes, then can I use the same credit for setting off my GST tax Liability.
A CA FIRM HAVING TURNOVER BELOW rS. 20 LAKH, WHERE THEIR BILL BE COVERED UNDER REVERSE CHARGE?
Can we file a NIL GST Return in the same manner as in case of NIL Service Tax Return i.e. all values showing to be ZERO beaucse the GST is payable by consignor being all transactions under RCM??
And, I am a GTA, so how & what details I need to show while filing GSTR-3B??
It seems like there is a typo in “ITC cannot be used to pay output tax”…do you mean ITC can’t be used to pay “reverse charge”?
please share invoice format “on reverse charge base” on my Eail Id [email protected]
[email protected] “can you please share invoice format on reverse charge base”
[email protected] can you please share invoice format under RCM..?
Sir,
Please provide me Bill format on reverse charge basis on [email protected] if possible Thank you
We are a service provider and some o four customers are not registered under GST considering the less than 20 Lakhs limit. how do we invoice these customers…what do we mention under the customer GST number column?
If you can share a format of detail of what has to be mentioned..please would help.
[email protected]
AIR TICKET AND HOTEL EXP MADE BY US ( WE ARE PVT. LTD COMPANY) OF RS 50938/- THIS EXP WAS FOR INDIVIDUAL BUT INDIVIDUAL IS ALSO BELONG FROM PVT LTD COMPANY. DO I NEED TO PAY GST AND WITH WHAT % TAGE
Sir, would you please share the Reverse Charge based bill format on [email protected]
I make invoice manually please send invoice format on reverse charge base
Hi Sir,
We are based in Gujarat India.
And we done business Outside of india…i explain….
Means We purchase product from Dubai and sell to USA , but not IMPORT and EXPORT from /TO India. Means my Dubai supplier directly ship to my USA Customer.In Banking language called Merchant Trading.
Then we are how to Calculate GST.
One Example :-
We buy Product from Dubai – $1000 USD
We sell product to USA – $1200USD
Our Profit Margin is India – $200USD.
Then what is our GST Cost.
Again said Dubai supplier directly ship to my USA customer…Product not come in India.
Please help i am very confuse.
We have stock as on 30th june 2017 purchased from unregistered dealers with 5.5% karnataka URD purchases vat paid, The product is meant for exports during August or sept 2017, what will be gst treatment on this? Pls suggest. GST rate on the product (essential oils) is 18%. Prior to GST, it was 12.5 for purchases from registered dealers or 5.5% purchase tax for purchases from URD
Please mention your mail id so I could mail you the Excel based format
please share invoice format “on reverse charge base”
I am a brick maker and supply bricks to customers through own trucks/vehicles. GST is exempt on ‘goods transport by road, except by Goods Transport Agency'(item 9). What is the exemption, if any, available to me.
yes. and is applicable on receipt of goods/service or on payment made to supplier whichever is earlier. you will have to raise invoice marking as “on reverse charge base”
ceiling limit of inr-5000 is restricted to CGST only.
supplying to unregistered person is not at all problem. being registered person, you can supply to any person
if we are supplying goods to unregistered firms then what are the issues ?
dealers who claim to have an annual turnover of less than 20 lakhs and will not register for gst can we supply to them ?
Please advice
If a unregistered dealer is providing service to a registered dealer, then whether RCM apply? and whether the limit of 5000 be check in that case or is it just for purchase of Goods?
I think for supply of service, there are specific RCM case and for the above RCM won’t apply. Please advice.
Should the recipient issue tax invoice for goods/services taxable on reverse charge basis? If so when?