Reverse Charge under GST

“Reverse Charge” means the liability to pay tax is on the recipient of goods or services instead of the supplier of such goods or services in respect of certain categories of supplies as notified.

Under the service tax provisions, reverse charge existed for services like Works Contract, Manpower, Goods Transport Agency, Legal services etc. However, under GST, reverse charge mechanism has been introduced for both Goods and services.

Time of supply of goods, under reverse charge mechanism, shall be the earlier of the following:

  • Date of receipt of goods
  • Date on which payment is made
  • Date immediately following 30 days from the date of issue of invoice by the supplier

The above concept is new under the excise and VAT, where predominantly the point of determinants were removal from factory and sale respectively.

Time of supply of services, under the reverse charge mechanism, shall be the earlier of the following:

  • Date on which payment is made
  • Date immediately following 60 days from the date of issue of invoice by the supplier

Further, the date on which payment is made, shall be the date on which the payment is entered in the books of accounts of the recipient, or the date on which the payment is debited in his/her bank account, whichever is earlier.

A person who is required to pay tax under reverse charge is required to obtain registration under GST, irrespective of the threshold limit.

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