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23rd July 2024
In the Union Budget 2024, the Finance Minister proposed an amendment to Section 13 of the CGST Act to provide for the time of supply of services where the invoice is required to be issued by the recipient of services in cases of reverse charge supplies from the unregistered supplier.
*This will come into force once notified by the CBIC.

26th June 2024  
The CBIC had issued the circular no. 211/5/2024-GST dt 26th June 2024 to clarify the recommendation by the GST Council w.r.t the availing of input tax credit under the provisions of section 16(4) of CGST Act for which the recipient has issued the invoice under RCM.

22nd June 2024
In the 53rd GST Council meeting held on 22nd June 2024, the Council recommended clarifying that in cases of supplies received from unregistered suppliers, where tax has to be paid by the recipient under reverse charge mechanism (RCM), and invoice is to be issued by the recipient only, the relevant financial year for calculation of time limit for availing of input tax credit under the provisions of section 16(4) of CGST Act is the financial year in which the recipient has issued the invoice.

When is Reverse Charge Applicable?

Section 9(3), 9(4) and 9(5) of Central GST and State GST Acts govern the reverse charge scenarios for intrastate transactions. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST Act govern the reverse charge scenarios for inter-state transactions. Let’s have a detailed discussion regarding these scenarios:

A. Supply of certain goods and services specified by the CBIC

As per the powers conferred in section 9(3) of CGST Acts, the CBIC has issued a list of goods and services on which reverse charge is applicable.

Click here to access the list of goods and services on which reverse charge is applicable.

B. Supply from an unregistered dealer to a registered dealer

Section 9(4) of the CGST Act states that if a vendor is not registered under GST supplies goods to a person registered under GST, then reverse charge would apply. This means that the GST will have to be paid directly by the receiver instead of the supplier. The registered buyer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.   

In intra-state purchases, CGST and SGST have to be paid under reverse charge mechanism (RCM) by the purchaser. Also, in the case of inter-state purchases, the buyer has to pay the IGST. The government notifies the list of goods or services on which this provision gets attracted from time to time.   

In the real estate sector, the government notified that the promoter should buy inward supplies to the extent of 80% from registered suppliers only. Suppose the purchases from registered dealers shortfall 80%, then the promoter should GST at 18% on the reverse charge to the extent short of 80% of inward supplies. However, if the promoter purchases cement from an unregistered supplier, he must pay tax at 28%. This calculation is to be done irrespective of the 80% calculation.   

The promoter is liable to pay GST on reverse charge basis on TDR or floor space index (FSI) supplied on or after 1st April 2019. Even if a landowner is not engaged in a regular business of land-related activities, transfer of development rights by such an individual to the promoter is liable to GST as it is considered as supply of service under section 7 of CGST Act. Also, in case of outward supply of TDR by one developer to another, GST is applicable at 18% on reverse charge.

C. Supply of services through an e-commerce operator

All types of businesses can use e-commerce operators as an aggregator to sell products or provide services. Section 9(5) of the CGST Act states that if a service provider uses an e-commerce operator to provide specified services, the reverse charge will apply to the e-commerce operator and he will be liable to pay GST. This section covers the services such as:

  • Transportation services to passengers by a radio-taxi, motor cab, maxi cab and motorcycle. For example – Ola, Uber. 
  • Providing accommodation services in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the person supplying such service through electronic commerce operator is liable for registration due to turnover exceeding the threshold limit. For example – Oyo and MakeMyTrip.
  • Housekeeping services, such as plumbing and carpentering, except where the person supplying such services through electronic commerce operators are liable for registration due to turnover beyond the threshold limit. For example, Urban Company provides the services of plumbers, electricians, teachers, beauticians etc. In this case, Urban Company is liable to pay GST and collect it from the customers instead of the registered service providers.

Also, suppose the e-commerce operator does not have a physical presence in the taxable territory. In that case, a person representing such an electronic commerce operator will be liable to pay tax for any purpose. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.    

Time of Supply Under RCM

A. Time of supply in case of goods

In case of reverse charge, the time of supply for goods shall be the earliest of the following dates:

  • the date of receipt of goods
  • the date of payment*
  • the date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.    

*This point is no more applicable based this Notification No. 66/2017 – Central Tax issued on 15th November 2017    

Illustration:

  1. Date of receipt of goods 15th May 2021
  2. Date of invoice 1st June 2021
  3. Date of entry in books of receiver 18th May 2021

The time of supply of service, in this case, will be 15th May 2021.   

B. Time of supply in case of services

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

  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the unregistered supplier
  • The date of issue of invoice by the recipient*

*This will come into force once notified by the CBIC.

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.    

Illustration:

  1. Date of payment 15th July 2021
  2. Date immediately after 60 days from the date of issue of the invoice (Suppose the date of the invoice is 15th May 2021, then 60 days from this date will be 14th July 2021)
  3. Date of entry in books of receiver 18th July 2021
  4. Date of issue of invoice by the recipient 24th July 2024

The time of supply of service, in this case, will be 14th July 2021

Registration Rules Under RCM

Section 24 of the CGST Act, 2017 states that a person liable to pay GST under the reverse charge mechanism have to compulsorily register under GST. The threshold limits of Rs.20 lakh or Rs.40 lakh, as the case may be, will not apply to them.

Who Should Pay GST Under RCM?   

The recipient of goods/services should pay GST under RCM. However, as per the provisions of GST law, the person supplying the goods must mention in the tax invoice whether tax is payable under RCM.

The following points should be kept in mind while making GST payments under RCM: 

  • The recipient of goods or services can avail of the ITC on the tax amount paid under RCM only if such goods or services are used for business or furtherance of business. 
  • A composition dealer should pay tax at the normal rates and not the composition rates while discharging liability under RCM. Also, they are ineligible to claim any input tax credit of tax paid. 
  • GST compensation cess can apply to the tax payable or paid under the RCM.

Input Tax Credit (ITC) Under RCM

A supplier cannot take the GST paid under the RCM as ITC. The recipient can avail of ITC on GST amount paid under RCM on receipt of goods or services, only if such goods or services are used or will be used for business purposes. 

The CBIC, vide circular no. 211/5/2024-GST, dated 26 June 2024, clarified that the relevant financial year for calculating the time limit for availing of input tax credit under the provisions of section 16(4) of the CGST Act would be the financial year in which such self-invoice was issued.

In case the recipient issues the invoice after the time of supply of the said supply and pays tax accordingly, he will be required to pay interest on such delayed payment of tax. Further, in cases of such delayed issuance of invoice by the recipient, he may also be liable to penal action under Section 122 of the CGST Act.

The recipient cannot use the ITC to pay output GST on goods or services under reverse charge and should be paid in cash only.

1. Applicability of Reverse Charge Mechanism (RCM)

Generally, the supplier of goods or services is liable to pay GST. However, in case of certain notified supplies, the receiver of goods or services is liable to pay GST under reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of goods or services instead of supplier of such goods or services.

Reverse Charge will be applicable in case of following situations

1) Supplies received by registered persons from unregistered suppliers

  • GST on reverse charge is levied if there is intra State supply of goods or services or both by an unregistered supplier to a registered person and the value exceed Rs 5000 in a day.
  • GST on reverse charge is payable on inter State supply of goods by an unregistered supplier to registered supplier

2) Supply of certain goods or services notified by CBEC

Update

The Central government upon the recommendations of the council has deferred the reverse charge mechanism till 30th Sep 2019

2. Goods notified under Reverse Charge

Goods like Cashew nuts (not shelled / peeled), bidi wrapper leaves, tobacco leaves, supply of lottery, silk / yarn etc. are taxable under reverse charge mechanism i.e., recipient is liable to pay tax.

3. Service notified under Reverse Charge

The following categories of services are notified under reverse charge mechanism. The recipient of services is liable to pay GST in case of following services.

  1. Supply of Services by Goods Transport Agency (GTA) in respect of transportation of goods by road to any factory, society, co-operative society, body corporate, any person registered under GST, partnership firm, casual taxable person
  2. Supply of services by an individual advocate including a senior advocate to any business entity located in the taxable territory.
  3. Supply of services by an arbitral tribunal to a business entity.
  4. Services provided by way of Sponsorship to a body corporate or partnership firm.
  5. Services supplied by the central/State government or local authority to a business entity excluding renting of immovable property, services by the department of post, services in relation to aircraft or vessel, transport of goods or passengers.
  6. Supply of services by a director of a company/ body corporate to the said company/body corporate.
  7. Services supplied by an insurance agent to any person carrying on such business (Insurance Business).
  8. Services supplied by a recovery agent to a banking company or financial institution or NBFC
  9. Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use of copyright relating to original literary, dramatic, musical or artistic works to publisher, company, producer or the like.

4. Tax Payable by the e-Commerce operator on notified services

The government has notified the specific categories of services where the tax on intra state supplies shall be paid by the E Commerce operator if such services are supplies through it.

  1. Services by way of transportation of passengers by a radio taxi, motor cab, minicab and motor cycle
  2. Services by way of providing accommodation in hotels, inns, guest houses, clubs etc except where the person supplying such service through e commerce operator is liable for registration under GST act
  3. Services by way of housekeeping such as plumbing, carpentering etc except where the person supplying such service through e commerce operator is liable for registration under GST act

FAQs

What happens if the receiver of goods or services is required to pay tax under reverse charge but is not a registered dealer?

All taxpayers required to pay tax under reverse charge have to register for GST, and the threshold of Rs.20 lakh or Rs.40 lakh, as the case may be, does not apply to them.

Is Input Tax Credit (ITC) allowed under reverse charge?

Tax paid on a reverse charge basis will be available for ITC if such goods or services are used, or will be used, for business. The recipient, i.e., who pays reverse tax, can avail it as ITC.

What if an Input Service Distributor (ISD) receives supplies liable to reverse charge?

An ISD cannot make purchases liable to reverse charge. If the ISD wants to procure such supplies and take the reverse charge paid as ITC, the ISD should register as a regular taxpayer.

When can one claim ITC of tax paid under RCM?

The person who paid tax under RCM in a month can claim it as ITC in the subsequent month.