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Reverse Charge Mechanism in GST- Basic Section 9 - GST Ready Reckoner - GSTExtract Reverse Charge Mechanism in GST- Basic Before going ahead we should first understand the meaning of following terms Supplier Recipient Taxable Person Agriculturist Business Entity Body corporate Registered Person What is the reverse charge Mechanism Generally, the supplier of goods or services is liable to pay GST. Reverse Charge Mechanism (RCM) 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. The objective of shifting the burden of GST payments to the recipient is to widen the scope of levy of tax on various unorganized sectors, to exempt specific classes of suppliers, and to tax the import of services (since the supplier is based outside India). Only certain types of business entities are subject to the RCM. RCM only transfer the liability of payment of tax, and all the provision of GST will be same, not change in determination of place of supply, time of supply, value determination of services or goods. Compliances in respect of supplies under reverse charge mechanism 1. Liability to be registered Person who are required to pay tax under reverse charge are required to be registered, irrespective of the threshold limit specified section 24(iii) of CGST Act,2017 This section override section 22 but not section 23 of CGST Act. Section 22 provides for exemption from registration when aggregate turnover does not exceed Rs. 20 lakhs. section 23 of CGST act provides for exemption from registration to those who are exclusively engaged in supply of goods or services or both which are not liable too tax or are wholly exempt. Person who are exempt from registered under section 23 of CGST Act are not required to register under section 24 of CGST Act. As per section 23 of CGST Act, following person are not liable to registered under GST (a) person engaged exclusively in suppling goods or services which are not liable to tax or wholly exempted (b) agriculturist 2. Payment and Input Tax Credit in case of RCM: - Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible. It should be paid by E-cash ledger, cannot be paid by utilizing e-credit ledger. Output tax does not include tax payable under RCM. Avail the ITC on such services, on which he is liable to pay GST under RCM, only after making payment of that tax in his E-cash ledger. A supplier cannot take ITC of GST paid on goods or services used to make supplies on which recipient is liable to pay tax. 3. Time of Supply when GST on goods or services payable on RCM basis The Time of supply is the point when the supply is liable to charge GST. One of the factors relevant for determining time of supply is the person who is liable to pay tax. In RCM, recipient is liable to pay GST. Thus, time of supply for supplies under RCM is different from the supplies which are under forward charge. The time of supply of goods, as per Section 12(3) of the CGST Act, 2017 in case of supplies of goods in respect of which tax is paid or liable to be paid on reverse charge basis. The time of supply of services, as per Section 13(3) of the CGST Act, 2017 in case of supplies for Services in respect of which tax is paid or liable to be paid on RCM basis. 4. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge. 5. Furnishing detail in GSTR-1:- Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1. 6. RCM applicable on advance payment for reverse charge supplies:- Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis. what is the Self Invoicing? Self-invoicing is to be done when purchased from an unregistered supplier, and such purchase of goods or services falls under RCM. This is because your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.
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