Top Guides For Revers Charge Mechanism Under GST [Amended]

Reverse Charge Mechanism under GST

1. As per section 2(98) of CGST Act 2017, “Reverse-Charge” means the liability to pay tax by the recipient of the supply of goods or services or both instead of the supplier of such goods or services or both

• Under sub-section (3) or sub-section (4) of section 9, or
• Under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Ac

Simply, The Reverse Charge Mechanism (RCM) is the process of GST Payment by the receiver instead of the supplier.

Applicability

The Reverse Charge Mechanism is applicable in the case of :

• Imports
• Purchase from an unregistered dealer
• Supply of notified goods and services

Important Notes

1. The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services. The only condition is that the goods and services are used or will be used for business or furtherance of business.
2. If the composite dealer falls under reverse charge mechanism then the dealer is ineligible to claim any credit of tax paid. The tax will be paid at the normal applicable rates and not at the composition rates.
3. As per Section 24 of CGST Act 2017, A person paying tax under the reverse charge mechanism has to compulsorily get registered even if the turnover is below the threshold limit.
4. GST Compensation Cess will be applicable on tax paid under reverse charge mechanism also. The purpose is to compensate States for loss of revenue on the implementation of GST. This will be applicable for 5 years from the date GST gets implemented.
5. The reverse charge mechanism is applicable to payments made in advance also.