Recently, the Central Government released a document explaining the concept of Reverse Charge Mechanism in detail.
Under the new Indirect Tax law rolled out on July 1st tax on certain services the Reverse Charge Mechanism (RCM), as per which, the service tax on specified services can be collected directly from the service recipient instead of collecting it from the service provider.
Earlier, the concept was applied in certain specified services for imposing service tax under Finance act, 1994.
“Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. 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.”
It said that under the new GST regime, there are two types of reverse charge scenarios. First one is depended on the nature of supply and nature of supplier. Second one 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.
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.
It said that one of the factor relevant for determining time of supply is the person who is liable to pay tax. “In reverse charge, the recipient is liable to pay GST. Thus, time of supply for supplies under reverse charge is different from the supplies which are under forward charge.”
Read the full text of the Concept Note below.
