Meaning
Reverse charge means the liability to pay tax 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.
Types
There are two type of reverse charge scenarios provided in GST law.
First category is dependent on the nature of supply and/or nature of supplier. The first scenario is covered by section 9 (3) of the CGST/ SGST (UTGST) Act and section 5 (3) of the IGST Act.
Second category is covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered which stands postponed.
Registration
A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of Rs. 20 lakhs (Rs. 10 lakhs for special category states except J & K) is not applicable to him.
Supplies of services under reverse charge mechanism:
| Sl. No. | Supplier of service | Category of Supply of Services | Recipient of Service |
| -1 | -2 | -3 | -4 |
| 1 | Goods Transport Agency (GTA) | Supply of Services by a goods transport agency (GTA) who has not paid central tax at the rate of 6%, in respect of transportation of goods by road to- | (a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or |
| (a) any factory registered under or governed by the Factories Act, 1948(63 of 1948);or | (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or | ||
| (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or | (c) any co-operative society established by or under any law; or | ||
| (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or | (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or | ||
| (e) any body corporate established, by or under any law; or | (e) any body corporate established, by or under any law; or | ||
| (f) any partnership firm whether registered or not under any law including association of persons; or | (f) any partnership firm whether registered or not under any law including association of persons; or | ||
| (g) any casual taxable person | (g) any casual taxable person; located in the taxable territory. | ||
| Provided that nothing contained in this entry shall apply to services provided by a goods transport agency, by way of transport of goods in a goods carriage by road, to, – | |||
| (a) a Department or Establishment of the Central Government or State Govt. or Union territory; or | |||
| (b) local authority; or | |||
| (c) Governmental agencies, which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services. | |||
| 2 | An individual advocate including a senior advocate or firm of advocates. | Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of | Any business entity located in the taxable territory. |
| advocates, by way of legal services, to a business entity | |||
| 3 | An arbitral tribunal | Services supplied by an arbitral tribunal to a business entity | Any business entity located in the taxable territory |
| 4 | Any person | Services provided by way of | Any body corporate or partnership firm located in the taxable territory |
| sponsorship to any body corporate or partnership firm. | |||
| 5 | Central Government, State |
|
Any business entity located in the taxable territory |
| Government, Union territory or local authority | a business entity excluding, – | ||
| (1) renting of immovable property, and(2) services specified below-(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;(ii) services in relation to an | |||
| aircraft or a vessel, inside or | |||
| outside the precincts of a port or an airport;(iii) transport of goods or passengers. | |||
| 5A | Central Government, State | Services supplied by the Central Government, State | Any person registered under the Central Goods and Services Tax Act, 2017.” |
| Government, Union territory or local authority | Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017). | ||
| 6 | A director of a company or a body corporate | Services supplied by a director of a company or a body corporate to the said company or the body corporate | The company or a body corporate located in the taxable territory |
| 7 | An insurance agent | Services supplied by an insurance agent to any person carrying on insurance business. | Any person carrying on insurance business, located in the taxable territory |
| 8 | A recovery agent | Services supplied by a recovery agent to a banking company or a financial institution or a non banking | A banking company or a financial institution or a non-banking financial company, located in the taxable territory |
| financial company | |||
| 9 | Author or music composer, | Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 | Publisher, music company, producer or the like, located in the taxable territory |
| photograp her, artist, or the like | of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like. | ||
| 10 | Members of Overseeing | Supply of services by the members of Overseeing Committee to Reserve Bank of India | Reserve Bank of India. |
| Committee constituted by | |||
| the Reserve Bank of India | |||
| 11 | Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm. | Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs). | A banking company or a non-banking financial company, located in the taxable territory |
| 12 | Business facilitator (BF) | Services provided by business facilitator (BF) to a banking company | A banking company, |
| located in the taxable territory | |||
| 13 | An agent of business | Services provided by an agent of business correspondent (BC) to business correspondent (BC). | A business correspondent, located in the taxable territory |
| correspondent (BC) | |||
| 14 | Any person other than a body corporate | Security services (services provided by way of supply of security personnel) provided to a registered person: | A registered person, located in the taxable territory |
| Provided that nothing contained in this entry shall apply to, – | |||
| (i) (a) a Department or Establishment of the Central Govt. or State Government or Union territory; or | |||
| (b) local authority; or | |||
| (c) Governmental agencies; | |||
| which has taken registration under the Central Goods and Services Tax Act, 2017 only for the purpose of deducting tax under section 51 of the Act and not for making a taxable supply of goods or services; or | |||
| (ii) a registered person paying tax under section 10 of the said Act. |
Explanations:
(a)The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification.
(b) “Body Corporate” has the same meaning as assigned to it in clause (11) of section 2 of the Companies Act, 2013.
(c) the business entity located in the taxable territory who is litigant, applicant or petitioner, as the case may be, shall be treated as the person who receives the legal services for the purpose of this notification.
(d) the words and expressions used and not defined in this notification but defined in the Central Goods and Services Tax Act, the Integrated Goods and Services Tax Act, and the Union Territory Goods and Services Tax Act shall have the same meanings as assigned to them in those Acts.
(e) A “Limited Liability Partnership” formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (6 of 2009) shall also be considered as a partnership firm or a firm.
(f) “insurance agent” shall have the same meaning as assigned to it in clause (10) of section 2 of the Insurance Act, 1938 (4 of 1938).
(g) “renting of immovable property” means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property.’.
(h) Provisions of the Notification No. 29/2018- Central Tax (Rate), in so far as they apply to the Central Government and State Governments, shall also apply to the Parliament and State Legislatures
Note:
Applicability of RCM on various categories is as under:
| Serial No. 1 to 5 and 9 | w.e.f. 1st July 2017 |
| Serial No. 5A | w.e.f. 25th January, 2018 |
| Serial No. 10 | w.e.f 13th October, 2017 |
| Serial No. 11 | w.e.f. 27th July, 2018 |
| Serial No. 12, 13, 14 | w.e.f. 1st January 2019 |
Supplies of goods under reverse charge mechanism:
| S. No. | Description of supply of goods | Supplier of goods | Recipient of goods |
| 1 | Cashew nuts, not shelled or peeled | Agriculturist | Any registered person |
| 2 | Bidi wrapper leaves (tendu) |
Agriculturist | Any registered person |
| 3 | Tobacco leaves | Agriculturist | Any registered person |
| 4 | Supply of lottery |
State Government, Union Territory or any local authority | Lottery distributor or selling agent |
| 5 | Silk yarn | Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn | Any registered person |
Sources
Click to access reverse-charge-mechanism-08aug2017.pdf
