Reverse Charge Mechanism under GST

Pramit Pratim Ghosh |Updated on: December 28, 2021

Introduction
What is Reverse Charge under GST?
Reverse Charge details in returns
Mandatory Registration for Reverse Charge Tax Payers

Introduction

Reverse Charge Mechanism, is a system wherein the liability to pay tax on a transaction to the Government is on the recipient. It is a concept, which has been carry forwarded from the previous tax regime. Under Service Tax, reverse charge was applicable in the case of specific notified services. Similarly in VAT, in almost every state, a registered person had to pay tax to the Government, in case purchases were made from unregistered dealers. It was also applicable in the case of imports, where the importer had to pay import duties to the Government. Reverse charge mechanism in GST too has been framed on similar lines.

What is Reverse Charge under GST?

Reverse charge mechanism in GST is applicable in the following 3 scenarios:

Supply of notified goods and services
Imports
Purchase from unregistered dealers

Supply of notified goods and services

Certain goods and services have been notified, on receiving which, the recipient has to pay tax as reverse charge under GST to the Government. Certain reverse charge mechanism in GST examples are - Cashew nut in shell, bidi wrapper leaves, and tobacco leaves.

Imports

When one imports goods and/or services, one will have to pay tax under reverse charge mechanism to the Government on the import, as per the rate applicable to the goods and/or services. On the value of the goods or services imported, customs duty will be levied separately, as it is not subsumed under GST . On the basic price + customs duty, IGST will be levied.

Purchase from unregistered dealers

When one purchases taxable goods and/or services from unregistered dealers, one will have to pay tax under reverse charge mechanism to the Government on the supply. This will be at the rate applicable to the goods and/or services. Note that this reverse charge is not applicable if the aggregate value of purchases from unregistered dealers does not exceed INR 5,000 in a day.

Reverse Charge details in returns

Reverse charge mechanism in GST is applicable in the following 3 scenarios:

Details of outward supply of notified goods and/or services, on which tax is to be paid by the recipient on reverse charge basis, should be furnished in Form GSTR-1
Details of inward supplies on which tax is to be paid by you on reverse charge basis should be furnished in Form GSTR-2

Mandatory Registration for Reverse Charge Tax Payers

As per the GST rules, a taxable person who is liable to pay tax under the reverse charge mechanism, will need to take mandatory registration under GST , irrespective of turnover.

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