What is Reverse Charge Under GST? 

Under this mechanism the recipient is responsible to pay the GST tax. It means when the buyer purchases any taxable goods covered under GST from a unregistered supplier, the buyer is supposed to pay tax. Since the seller is not registered and he is selling the goods which is not exempted from GST then it is the duty of the buyer to pay the GST at the rate applicable on such goods. For example, Mr. X is not registered under GST and he supplies the taxable goods to Mr. Y for Rs. 5000/= and rate of  GST is applicable on this material is @ 12%. In this case Mr. Y is liable to pay the tax for RS.600/= to GST Department.

At present, the provisions of  Reverse Charge are applicable in respect of services like Works Contract, Manpower, Goods Transport Agencies, legal services etc. But under GST mechanism, goods are also included for Reverse Charge.

The purpose of introducing of the Reverse Charge in respect of supply of certain type of services and goods, is to bring more people under GST so that more tax can be collected.

Important Point in Respect of Reverse Charge Mechanism

  • Reverse Charge mechanism is applicable in case of supplies of taxable goods or service under GST Act,  are made to a registered buyer.
  • Reverse Charges mechanism is applicable in case of supplies of goods or services or both which are notified under GST.
  • Services under GST in respect of Reverse Charge mechanism are:- Goods and Transport Agencies, Manpower Supply, Insurance Agents, Non- resident Service Providers, Service of a Director to a Company, Any Service Involving Aggregators and any notified service under GST.
  • Under Reverse Charge mechanism, the recipient is only liable to pay tax on goods and services.
  • If the buyer or seller both are below threshold limit and if recipient receives any good or service as covered under GST mechanism, it is the duty of the recipient to get registered under GST though  he is below the threshold limit. Threshold limit of turnover is Rs.20 lac (Rs.10 lac for North Eastern and Hill State.
  • The registered recipient can avail the Input Tax Credit for the tax paid under Reverse Charge Mechanism.
  • A Composition dealer is also supposed to pay tax under Reverse Charge Mechanism at normal rates but he can not avail the Input Tax Credit of such amount.

According to 22nd GST Council meeting held on 6th Oct’2017, Reverse Charge Mechanism (RCM) applicable for the purchases from registered dealer shall be suspended till 31.03.18.

According to the 26th meeting of GST Council, held on 10.03.18, suspension of Reverse Charges Mechanism is being extended up to June’2018.

According to the 28th meeting of GST Council, held on 20.07.18, suspension of Reverse Charges Mechanism is being extended up to September’2019.