The GST is typically borne by the provider of the products and services. With the Reverse Charge Mechanism, the tax responsibility is reversed because the recipient of the goods and services must pay the tax. As a general rule, GST works as follows:
- The recipient purchases the goods or services from the supplier, who is then paid by the latter.
- Additionally, GST is paid with this payment, which the provider subsequently disburses to the government.
- With the Reverse Charge Mechanism under GST, the recipient pays the tax to the government directly; as a result, it does not pass via the supplier and is not included in the exchange of goods or services.
Time of Supply Under RCM
Goods’ Time of Supply
The earliest of the following dates will serve as the time of supply for a reverse charge against goods:
The payment date
- Date of the goods’ receipt
- 30th day following the supplier invoice’s date of issue
- When a product’s supply date cannot be established, the time of delivery shall be the date of entry as recorded in the recipient’s books.
- Time of Service Supply
The earliest of the following dates shall serve as the period of supply for a reverse charge against services:
The payment date 60th day following the supplier invoice’s date of issue
When does reverse charging apply?
These are the circumstances where a GST reverse charge mechanism is used.
Supply to an authorized dealer from an unlicensed dealer
The reverse charge mechanism will be used if the vendor is not registered for GST but the customer they are selling to is.
The person who receives the goods or services will self-invoice for the purchase and pay GST immediately.
The buyer will be responsible for paying IGST in interstate transactions and SGST and CGST in intrastate transactions under RCM.
Services for E-commerce
RCM under GST will be applied to the concerned e-commerce operator if they provide services.
A representative of the operator or a person chosen to represent the operator would be responsible for paying GST in circumstances where the operator does not have a physical office in the region where tax is levied.
Provision of Particular Goods
~ The CBIC (Central Board of Indirect Taxes and Customs) regulations specify which items and services are covered by the GST Reverse Charge Mechanism. It is a lengthy list that is simple to find online. Among the things on the list are:
- Cashew nuts
- Bidi wrapper
- Tobacco leaves
- Raw cotton