Usually, the seller collects taxes from the government and pays taxes to the government, but in certain cases, the buyer of the goods is responsible for paying the tax instead of the supplier.
The Reverse Charge Mechanism is divided into three sections:
Government Notified Services and Goods on that Reverse Charge is applicable
Supply of Goods by an unregistered person to the registered person. This was discontinued by the government
Notified goods or services supplied through e-commerce aggregators.
In the current article we will cover first scenarios about the various goods or services that are notified on which Reverse Charge Mechanism is applicable
Registration Requirement
As per Section 24 of the CGST Act, 2017, persons who are required to pay tax under reverse charge should register themselves compulsorily, irrespective of the turnover limit.
Supplies of goods under reverse charge mechanism
Sr. No. | Description of Supply of Goods | Supplier of Goods | Recipient of Supply |
1 | Cashew nuts, not shelled or peeled | Agriculturist | Any registered person |
2 | Bidi wrapper leaves (tendu) | Agriculturist | Any registered person |
3 | Tobacco leaves | Agriculturist | Any registered person |
3Aa | Essential oil - Pepper mint (Mentha piperita) | Any unregistered person | Any registered person |
3Ab | Essential oil - Other mints: Spearmint oil (exmenthaspicata), Water mint oil (exenthaaquatic), Horsemint oil (exmenthasylvestries), Bergament oil (exmenthacitrate) | Any unregistered person | Any registered person |
4 | Silk yarn | Person manufacturing silk yarn from raw silk or silk worm cocoons | Any registered person |
4A | Raw cotton | Agriculturist | Any registered person |
5 | Supply of lottery | State Government, Union Territory, or any local authority | Lottery distributor or selling agent |
6 | Used vehicles, seized and confiscated goods, old and used goods, waste and scrap | Central Government, State Government, Union territory, or a local authority | Any registered person |
Supplies of services under reverse charge mechanism:
Sr no. | Description of supply of service | Supplier of service | Recipient of service |
1 | Any service supplied by any person who is located in non-taxable territory to any person other than a non-taxable online recipient. | Any person located in a non-taxable territory. | Any person located in the taxable territory other than a non-taxable online recipient. |
2 | GTA service | Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12% | Any factory, society, cooperative society, registered person, body corporate, partnership firm, or casual taxable person; located in the taxable territory |
3 | Legal Services by advocate | An individual advocate including a senior advocate or firm of advocates | Any business entity located in the taxable territory |
4 | Services supplied by an arbitral tribunal to a business entity | An arbitral tribunal | Any business entity located in the taxable territory |
5 | Services provided by way of sponsorship to any body corporate or partnership firm | Any person | Any body corporate or partnership firm located in the taxable territory |
6 | 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- (i) 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; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii)transport of goods or passengers | Central Government, State Government, Union territory or local authority | Any business entity located in the taxable territory |
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 | |
8 | Services supplied by an insurance agent to any person carrying on insurance business | An insurance agent or Non Corporate DSA | Any person carrying on insurance business, located in the taxable territory |
9 | Services supplied by a recovery agent or DSA ( non corporate DSA) 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 nonbanking financial company, located in the taxable territory |
10 | Service of renting of residential dwelling to a registered person | Any Person | Any Registered Person |
11 | 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 covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or | Author or music composer, photograph her, artist, or the like | Publisher, music company, producer or the like, located in the taxable territory |
12 | Service supplied by any person by way of transfer of TDS or FSI for construction of a project by promoter | Any Person | Promoter |
13 | Long Term Lease of Projects (30 years or more) by any person against consideration in any form of upfront premium (called as premium, salami, cost, price , development charges or any other name) and/or periodic rent for construction of a project by promoter | Any Person | Promoter |
14 | Services Provided by way of renting of any motor vehicle to carry passengers where the cost of fuel is included in the consideration charged from the service recipient | Any person other than a body corporate who supplies service to a body corporate & doesn’t include invoice charging GST @12% of the service recipient | Anybody corporate located in taxable territory |
Stay tuned with us for our upcoming article on reverse charge which explains the complexities and compliances of each type of different service of reverse charge.