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Reverse Charge Under GST

What is a reverse charge under GST?

The earlier regimen of the tax system in India was origin-based and the implementation of the new GST system has transformed the traditional system into a destination-based taxing system. This new system not only aims to smoothen business processes and increase revenue by eliminating process with double taxation and other snowballing effects.

The reverse charge system was introduced by the new GST regime to bring in centralization in the sectors that were completely unorganized and partly organized.

Before the new regime, service tax was only applicable for scenarios with ‘services’ and not for goods. The new regime under the GST is applicable for both services and goods where tax is accounted for reverse charge.

In simple terms, a reverse charge is when the recipient of the goods or services or both is liable to pay the tax instead of the supplier.

In the current regime, except for the few services which continue to operate under reverse charge, all other purchases of goods and services from unregistered dealers are now chargeable to tax on a normal cash basis. Since there is no specific provision for reverse charge in the Goods and Services Tax law, if a registered person, with a current exemption certificate (CEN), makes a supply of goods on a reverse charge basis, he will be liable to pay Central Goods and Services Tax (CGST) on reverse charge basis also. This has happened as from 1st July 2017, the supplier while submitting the initial assessment return had notified the fact that he has made supplies at both normal cash and reverses charge basis.

Taxability under reverse charge means the tax liability of the recipient of services is passed on to the service provider. This is done to avoid circumvention of the distribution chain where goods and services are advertised outside the jurisdiction at a lower rate and subsequently business is being conducted in a jurisdiction with no sales tax, thereby avoiding taxation in the former jurisdiction.

When a person is liable to pay a reverse charge, he is privy to certain provisions like threshold exemption, time of supply, and availing input credit. This article will help you gain insights into these provisions.

Scenarios where a reverse charge is applicable?

1)  If the transaction of services or goods is happening between an unregistered dealer and a registered dealer, it is the registered dealer who is liable to pay the tax.

2) Other scenarios fall under the bracket of reverse charge and the state and the central governments constantly roll out updates and notifications on the same.

Time of supply of goods under reverse charge:

The receiver of the goods or services or both is liable to pay GST at the earliest by evaluating the following conditions:

* Date when the goods were received:

* Date of payment for the goods:

This point looks into the earliest date that notes the payment for the service/goods or both on the books or the date at which the money was credited into the recipient’s account.

* 30 days from the invoice date:

The 30-day control period is the minimum period that a supplier has to fulfil a legitimate invoice; it is considered as a time of supply. Although it is the most basic control period, every invoice is destined to be paid in full within a 60-day period starting from the date of invoice. Remember that suppliers can choose to either grant extensions to these periods or hold additional payments after the expiry date, so you should make sure that all payments are settled in full 30 days from the invoice date.

Time of supply for services under reverse charge:

Like in the case of time of supply of goods, similar provisions have been applied by the government to determine the time of supply for services. They are:

* The date of payment:

The earliest of 2 conditions will be considered for this provision. The first one is the date at which the money is debited from the supplier’s account and the second one when the money is reflecting in the recipient’s account.

Everyone has the right to determine the time of supply. The period that the assessee is required to mention as applicable will be different, depending on the nature of services provided.

If the assessee fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which the recipient of service enters his books of accounts.

What is self-invoicing?

Self-billing invoices allow a business customer to raise supplier invoices and send them on to the supplier for payment. Suppliers can then deal with the self-billed invoice in the same way as if it was received from an outside customer.

The self-invoice invoice provides a paperless workflow where the supplier invoices the customer. However, the transaction overview still includes all the invoiced amounts and payment dates for reconciliation purposes. It provides an easy way to print an invoice for one or multiple customers and shows due dates.

Advantages of Self invoicing are:

Once you are registered with a customer, you can start issuing self-billing invoices. The advantages of self-billing are that there are fewer administrative costs as compared to conventional invoice management.

Self-billing invoices produce additional savings, in comparison to traditional invoicing. There are multiple cost-free invoicing software that reduces the time spent on processing paperwork, automates invoice management, and reduce errors.

The advantage of self-invoicing is that it gives better control over outgoing invoices. Outgoing invoices have to be approved and raised by accounts payable before they can be sent out. As a rule, accounts payable does not have time to check every invoice that is raised. This means that some invoices might be sent out before they should have been. That is not a problem with self-invoicing, as it does not require approval from accounts payable before it can be sent out.

With the advancement in the field of information technology, self-billing invoices are generated from approved timesheets and expenses. The system ensures that this data is accurate, and no single rates or amount of money is inflated. This is important to have on record so that not all employees claim unjustifiable time that may cost the company a lot of money.


What should be done in a scenario where the recipient of the goods or services or both is not a registered GST member?

In this case, the threshold of INR 20 Lakh rupees does not apply to them.

Does Reverse charge credit accommodate tax credit?

Yes, the recipient is allowed to avail tax credit if he intends to use the goods or services or has already used the goods or services in context.
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