GST: Reverse Charge Mechanism

Reverse Charge Mechanism

Under the GST Law, the levy of tax is as follows:

a.      In the hands of supplier – on supply of goods and/or services (referred to as tax under forward charge mechanism)

b.      In the hands of the recipient – on receipt of goods and/or services (referred to as tax under reverse charge mechanism) [Section 9(3)]

In the normal course, the tax would be payable by the supplier of goods and/or services. However, in specific cases the onus of payment of tax is shifted to the recipient of goods and/or services. Such cases are:

a.      When goods/services are supplied by a supplier who are un-registered person to a receiver who is a registered person, the liability to pay tax in such cases will be on the recipient under reverse charge basis. [Section 9(4)]. However, such registered person is not required to pay tax on reverse charge basis when the aggregate value of all supply of goods and services from all unregistered suppliers is not more than ₹5000 in a day. [Notification No. 8/2017-Central Tax (Rate)]

b.      List of goods notified for reverse charge under Notification No. 4/2017-Central Tax(Rates) dated 28/06/2017

Sl. No.	Tariff Item, Sub-heading, Heading or Chapter	Description of Supply of Goods	Supplier of Goods	Recipient of Supply (Person required to pay Tax under Reverse Charge)
1.	0801	Cashew nuts not shelled or peeled	Agriculturist	Any registered person
2.	1404 90 10	Bidi wrapper leaves (tendu)	Agriculturist	Any registered person
3.	2401	Tobacco leaves	Agriculturist	Any registered person
4.	5004 to 5006	Silk yarn	Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn	Any registered person
5.	-	Supply of lottery	State Government, Union Territory or any local authority	Lottery distributor or selling agent.

c.       List of Services to be covered under the Reverse Charge

Sl. No	Category of Supply of Services	Supplier of Service	Recipient of Service
1.	Service by GTA in respect of transportation of goods by road to a.      Any factory registered under the factories act, or b.      Society registered under societies registration act, or c.       Any co-operative society established under any law, or d.      Any person registered under the CGST Act or IGST Act or SGST Act, or e.      Any body corporate established by or under any law f.        Any partnership firm registered or not under any law including AOPs g.      Any casual taxable person	Goods Transport Agency [GTA]	a.      Any factory registered under the Factories Act, or b.      Society registered under Societies Registration Act, or c.       Any co-operative society established under any law, or d.      Any person registered under the CGST Act or IGST Act or SGST Act, or e.      Any body corporate established by or under any law f.        Any partnership firm registered or not under any law including AOPs g.      Any casual taxable person
2.	Services 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 the contract for provision of service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity	An individual advocate including a senior advocate or firm of advocates	Any business entity located in the taxable territory
3.	Services supplied by an arbitral tribunal to a business entity	Arbitral Tribunal	Any business entity located in the taxable territory.
4.	Services provided by way of sponsorship to any body corporate or partnership firm	Any person	Any body corporate or partnership firm located in taxable territory
5	Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - 1.      renting of immovable property, and 2.      services specified below - a.      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 b.      services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; c.       transport of goods or passengers	Central Government, State Government, Union territory or local authority	Any business entity located in the taxable territory
6.	Services supplied by a director of a company or a body corporate to the said company or the body corporate	A director of a company or a body corporate	The company or a body corporate located in the taxable territory
7.	Services supplied by an insurance agent to any person carrying on insurance business	An insurance agent	Any person carrying on insurance business, located in the taxable territory
8.	Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company	A recovery agent	A banking company or a financial institution or a non-banking financial company, located in the taxable territory
9.	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 under Copyright Act, relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like.	Author or music composer, photographer, artist, or the like	Publisher, music company, producer or the like, located in the taxable territory