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Reverse Charge under GST

Meaning of Reverse Charge under GST

As per section 2(98) of CGST Act, 2017

“reverse charge” Means the liability to pay tax by the Recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or subsection (4) of section 9 or under sub section (3) or sub section (4) of section 5 of the Integrated goods and services tax Act.

Liability to Pay Tax under Reverse Charge

Section 9(3)

  • The Government may , on the recommendation of the council , by notification,
  • Specify Categories of supply of goods or services or both , the tax on which shall be paid on
  • Reverse charge basis by the Recipient of such goods or services or both and
  • All the Provision of this act shall apply to such recipient as if the person liable for paying the tax in relation to the tax in relation to the supply of such Goods or services or both.

List of Service under Reverse Charge

  1. Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessee online recipient.
  2. Services provided by GTA in respect of transportation of goods.
  3. Legal services provided by an individual advocate or a firm of advocates or an arbitral tribunal.
  4. Sponsorship service.
  5. Services provided by a government or Local authority.
  6. Services provided by a director of the company or body corporate to said company or body corporate.
  7. Services by an insurance agent to any person carrying on insurance business.
  8. Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non banking financial company.
  9. Services by way of transportation of goods by a vessel from a place outside India up to the custom station of clearance in India.
  10. Transfer or permitting the use or enjoyment of a copyright.
  11. Radio taxi or passenger transport services provided through electronic commerce operator.

 

 

 

 

Liability to Pay Tax under Reverse Charge

Section 9(4)

  • The central tax in respect of the supply of taxable goods or services or both by a
  • Supplier , who is not registered , to a registered person shall be paid by
  • Such person on reverse charge basis as the recipient and
  • All the provision of this act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Registered Person

    • According to section 22, a registered person is whose aggregate turnover in a financial year exceeds 20 lakhs.
  • For the purpose of computing aggregate turnover all taxable supplies exempt supplies , export of goods or services or both and interstate supplies shall be taken into consideration on all India basis but it shall not include the supplies on which tax is payable on reverse charge basis.

 

  • So a person whose aggregate turnover is more than 20 lakh shall only obtain registration.
  • Having said the, clause (iii) of section 24 of the CGST Act, 2017 states that a person who is required to pay tax under reverse charge shall be compulsorily required to get registration irrespective of the threshold limit.

ILLUSTRATION. 1

  • Let’s say Mr. X an advocate and procuring goods or services from unregistered person.
  • Currently Mr. X is not registered in GST as the arbitral services provided by Mr. X to business entities are covered under reverse charge. So in this case the business entities being the recipient will be liable to pay GST under reverse charge and when he is providing services to individual, it is exempt from GST.
  • So now will he required getting myself registered and paying tax under reverse charge?
  • For this , let’s go back to section 9(4), it says that if any supply of goods or services is made by an unregistered person to r registered person , then the recipient will be liable to pay tax. In this example he would not be liable to get compulsorily registered by virtue of clause (iii) of section 24. Thus, he would not be liable to pay tax under reverse charge.

 

 


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