It is always the case where the supplier of goods and services is liable to pay the GST. But, when it comes to Reverse Charge Mechanism, the receiver of goods and services has to pay the tax, meaning that the tax liability is reversed. Reverse Charge means the liability to pay tax while GST return filing is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.
According to the normal GST return filing procedure, the supplier sells goods/services to the receiver and the latter pays the former for the same. This payment also includes GST, which the supplier then pays to the government. But, in the case of the Reverse Charge Mechanism in GST, tax is paid by the receiver directly to the government; it does not go through the supplier and is not part of the exchange of goods/services.
When is a reverse charge applicable?
Several acts govern the reverse charge scenarios for intrastate transactions. Section 9(3), 9(4) and 9(5) of Central GST and State GST deal with it. 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 take a closer look at these scenarios.
Supplies of goods under reverse charge mechanism:
Time of supply under reverse charge mechanism (RCM)
The time of supply under GST means a particular point of time when the goods or services are supplied or provided. Using the time of supply, you can find the tax rate applicable on goods or services, the person liable to pay tax and due dates for paying GST and GST return filing. Under the reverse charge mechanism, the method to determine the time of supply is different for goods and services.
In the case of goods supplied under RCM, the time of supply will be the earliest of the following dates:
-Date of receipt of goods
-Date immediately after 30 days from the date of issue of an invoice by the supplier
In the case of services rendered under RCM, the time of supply will be the earliest of the following dates:
-Date of payment
-Date immediately after 60 days from the date of issue of invoice by the supplier
In case, the time of supply cannot be determined under the given conditions above, then the time of supply will be the date of entry in the books of account of the recipient.
RCM Provisions Under GST Return filing Forms — GSTR 1 — GSTR 2
In case the supplier is registered, but the goods or services come under a reverse charge mechanism, ITC cannot be claimed by the supplier as the tax is not credited by him but the receiver is paying the taxes. In the case of importers of goods, taxes need to be paid under a reverse charge mechanism to the Government on the import while GST return filing.
The details of the charges pertaining to the inward supply of goods or services are to be mentioned in the GST Return filing form 1. The details of inward supply are stated in GST Return filing form 2. Further, the person needs to get registered under GST irrespective of the turnover, if he/she is liable to pay tax under the reverse charge mechanism
Final Words
The main purpose of the reverse charge mechanism is to collect indirect tax easily and conveniently from the recipient while GST return filing so as to increase tax revenues more effectively in cases where the supplier of particular goods or services is situated in non-taxable territories or not well versed with the tax laws.
Originally published at https://supercain.blogspot.com on January 9, 2022.
