The document explains the reverse charge mechanism under GST, where the recipient of goods or services pays the tax directly to the government instead of the supplier. It details the conditions under which reverse charge applies, including specific exemptions and the requirement for registration for entities dealing with unregistered suppliers. Additionally, it outlines the time of supply determination, invoicing requirements, and the implications for input tax credit associated with reverse charge transactions.

1. FCA, B.COM, MBA, LLB

2. CA Sanjiv Nanda, Smarthead Consultants

3. What is Reverse Charge?
“GST” Reverse Charge Mechanism (RCM) basically means
that the “GST” is to be paid and deposited with the
Government by the recipient of Goods/ Service and not by the
Supplier of Goods/ Service.
Under the normal mechanism of levy of “GST” , The
Receiver of Good/ Service pays the “GST” to the supplier of
Goods/ Service and such supplier then deposited the “GST”
with the Government.( After taking the benefit of input tax
credit).
However, under the Reverse Charge Mechanism, the “GST”
is paid and deposited by the recipient by the recipient with the
Government . On behalf of the supplier of Service.
CA Sanjiv Nanda, Smarthead Consultants

4. CA Sanjiv Nanda, Smarthead Consultants
Receiver Supplier Govt
Makes Payment
+ GST
Deposits GST with Govt.
Normal Mechanism of Levy Of GST

5. CA Sanjiv Nanda, Smarthead Consultants
Receiver Supplier Govt
Makes Payment
Without GST
Deposits GST with Govt. on
behalf of Supplier
Reverse Charge Mechanism Of levy of GST

6. CA Sanjiv Nanda, Smarthead Consultants
Reverse Charge under Section 9(4) – Supply From Unregistered to
Registered Person :-
Mechanism would get applicable i.e. the “GST” would be required to be
paid by the Registered Person directly to the Govt. on behalf of the
supplier.
However, in case of supply of exempt goods or service, “GST” under
Reverse Charge Mechanism shall not be applicable. This can be
explained with the help of an example.
Example :- A Registered person stays in a hotel whose room tariff is
less than Rs. 1000. Section 9(4) would not be applicable since the service
by a hotel having declared value less than RS. 1000. per day or
equivalent is an exempt service .

7. When is Reverse Charge Applicable ?
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a) It is pertinent to note here that the provisions of Reverse Charge
Under Section 9(4) are Applicable only for within the same state. The
provision of Reverse Charge under this Section are not applicable to
Inter- state supplies inter- state supplier cannot be made by unregistered
suppliers.
b) Reverse Charge provision would not be Applicable if the Aggregate
value of such supplier of Goods or Service or both received by a taxable
person from any or all the suppliers, who are not registered, Does not
exceed Rs. 5,000 in a day. In other words, if the total supply of goods
or service from unregistered person does not exceed Rs. 5,000 in a day,
then the provisions of reverse charge would not be applicable .
Example :- Karan Batra gets his website redesigned from Rajan based in
New Delhi (an unregistered person under GST) 15th July for
Rs. 4000.
He also hires Sahil, a digital market based in New Delhi (Unregistered
under GST) for promotion of his website on 15th July for Rx. 3000.

8. Good & Service By Govt. of Reverse Charge
Mechanism
Which are notified by the Government Reverse Charge Under Section 9 (3)
is applicable for both Inter- state as well as same state transactions .
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Applicability of Reverse Charge
Applicable in all cases of
supply from unrequested
Dealer to Registered Dealer
Section 9(4)
Applicable in all cases of
supply of specified goods &
service which are notified by
the Govt.
Section 9(3)

9. S.NO DESCRIPTION OF SUPPLY 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
4. Silk Yarn Any person who
manufactures si k yarn
from raw silk worm
cocoons for supply of silk
yarn,
Any Registered
person
Reverse Charge on Goods Under Section 9(3)
The Goods on which “GST” shall under Reverse Charge have been announced vide
Notification No 04/2017 date 26th June 2017 and these have been mentioned below for
ready reference.
5.Nt Supply of Lottery State Govt. Union Territory
or Local Authority
Lottery Distributer
or Selling Agent

10. Reverse Charge or Service Under Section 9(3)
The Services on which “GST” shall be levied under Reverse Charge have been
mentioned below for ready reference.
S.NO DESCRIPTION OF SUPPLY OF
SERVICE
SUPPLIES OF GOODS RECIPIENT OF SUPPLY
1. Any service supplied by any
person who is located in a non-
taxable territory to any person
other than non- taxable online
recipient.
Any person located
in Non-taxable
territory.
Any person located in
taxable territory other
than non- taxable online
recipient
2. Supply of Services By a Goods
Transport Agency (GTA)
Goods Transport
Agency (GTA)
-Any factory register
under or governed by
the Factories Act 1948,
or Registration Act, 1860
or
under any other law for
the time being in force in
any part of India, or
-Any co-operative society
established by or under
any law. Or

11. Reverse Charge or Service Under Section 9(3)
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S.NO DESCRIPTION OF SUPPLY OF
SERVICE
SUPPLIES OF
GOODS
RECIPIENT OF SUPPLY
-Any person registered under
CGST Act or SGST Act or
IGST. Act or UTGST Act, or
-Any body co-operate
establish, by or under any
law including association of
person, or
-Any Casual taxable person
-Located in the taxable
territory
3. Service provided by an
individual advocate including
a Senior Advocate by way of
Representational service
before Court Tribunal or
Authority by way of legal
service, to a Business Entry
Any individual
Advocate including
a Senior Advocate
or firm of Advocate
-Any Business entry located
in the taxable territory.

12. Reverse Charge or Service Under Section 9(3)
S.NO DESCRIPTION OF SUPPLY OF
SERVICE
SUPPLIES OF
GOODS
RECIPIENT OF SUPPLY
4) Service provided by an
Arbitral Tribunal to a Business
Entity
Any Arbitral
Tribunal
Any Business entity located
in the taxable territory
5) Sponsorship service Any Person A body Corporate or
Partnership Firm located in
the taxable territory
6) Service provided or agreed to
be provided 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.
A Company or a Body
Corporate
7) Service provided or agreed to
be provided by an insurance
Agent.
An Insurance Agent Any Person carrying on the
insurance Business
8) Service provided or agreed to
be provided by an recovery
Agent.
An Recovery Agent A Banking Company or a
Financial institution or a
NBFC

13. Reverse Charge or Service Under Section 9(3)
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S.NO DESCRIPTION OF SUPPLY OF
SERVICE
SUPPLIES OF GOODS RECIPIENT OF SUPPLY
9) Service provided by Govt. or Local
Authority Excluding:-
-Renting of Immovable Property,
and
-Service Specified below
-Service by the Department of
posts by way of speed Post, express
parcel post, life insurance, and
agency service provided to a
person other than central Govt.
State Govt. or Union Territory or
Local Authority.
-Service in relation to an aircraft or
a vessel, inside or outside the
precincts of an airport of a port
-transport of Goods or Passengers .
Central Govt. , State
Govt. , Union
territory or Local
Authority
Any Business entity
located in the taxable
territory

14. Reverse Charge or Service Under Section 9(3)
CA Sanjiv Nanda, Smarthead Consultants
S.NO DESCRIPTION OF SUPPLY OF
SERVICE
SUPPLIES OF GOODS RECIPIENT OF SUPPLY
10) Taxable territory by way of
transportation of goods by a vassel
from a place outside India up to
customs station of clearance in
India.
A person located in
non-taxable territory
Importer, as Clause 28
of Section 2 of the
Customs Act, 1962
located in the taxable
territory .
11) Supply of Service by an author,
music composer, photographer,
artist or the like by way of transfer
or permitting the use of a copyright
covered under Section 13(1) (a) of
the Copyright Act 1957 .
Author or Music
Composer
Photographer, Artist
etc.
Publisher, Music
Company Producer.

15. Time of Supply For Reverse Charge under GST
CA Sanjiv Nanda, Smarthead Consultants
For the Levy of Reverse Charge under “GST” , It’s very important to ascertain
the time of supply as “GST” would be required to be deposited with the Govt.
within 20 days from the end of the month in which the service were provided.
Time of supply in case of supply of Goods:-
Time of Supply in case of Supply of Goods
1. The date of receipt of goods, or
2. The date of payment, or
3. The date immediately after 30 day from the date of issue of invoice by
the supplier.
If it’s not possible to determine the time of supply under (a), (b) or©
above, the time of supply shall be the date of entry in the books accounts
of the recipient.

16. Time of Supply For Reverse Charge under GST
CA Sanjiv Nanda, Smarthead Consultants
Example :- Determine the time of supply in the below mentioned case of supply of
Goods:-
1) Date of Receipt of Goods : 14th Oct
2) Date of Payment : 19th Dec.
3) Date of Invoice: 1st Nov.
4) Date of entry in Books: 18th Oct
Solution:- In the above mentioned case the time of supply would be 14th
Oct. However, in case (a), (b), © are not available, the date of
entry in the books i.e 18th Oct would be considered.

17. Time of Supply For Reverse Charge under GST
Time of Supply In Case Of Supply Of Service :
In case of Reverse Charge, the time of Supply would be the earliest of the
following
1) The date of Payment, or
2) The date immediately after 60 days from the date of issue of invoice by
the suppler.
If it’s not possible to determine the time of supply under (a) or (b)
above, the time of supply be the of entry in the books of accounts of the
recipient
Example:- . Determine the Time of Supply in the below mentioned case
of supply of Goods:-
1) Date of payment : 10th August.
2) Date of invoice: 21st July.
3) Date of Entry in book : 1st August
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18. Time of Supply For Reverse Charge under GST
CA Sanjiv Nanda, Smarthead Consultants
Date of Payment :-
1) The Date on which the payment in debited from his bank account OR.
2) The Date on which the recipient entered the payment in his books.
Solution :- In the above mentioned case the time of supply would be 10th
August. However, in case (e), (b) are not available, the date of entry in the
books i.e. 1st August would be considered.

19. Character tics Of Reverse Charge
CA Sanjiv Nanda, Smarthead Consultants
1) What happens if the receiver of goods and/ or service is required to pay
tax under Reverse Charge but is not a registered dealer ?
All persons who are required to pay tax under reverse charge have to register
for “GST” Irrespective of the threshold.
Threshold : Turnover in a financial year exceeds Rs. 20 Lakhs (Rs.10
lakhs for North esteem and hill states
2) Is input Tax Credit allowed under Reverse Charge?
Tax Paid on Reverse Charge basis will be available for input tax credit if
such goods and /or service are used. Or will be used, for business. The
recipient (i.e. who pays reverse tax) can avail input credit

20. Character tics Of Reverse Charge
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3) How to determine Time of Supply Under Reverse Charge?
Time of Supply in case of Goods
In case of “Reverse Charge” the time of supply shall be the earliest of the
following dates:
a) The date of Receipt of goods OR
b) The date of Payment* OR
c) The date immediately after THIRTY days the date of issue of invoice
by the supplier.
If it’s not possible to determine the time of supply under (a), (b), or ©,
the time of supply shall be the date of entry in the books of account of
the Recipient.

21. Character tics Of Reverse Charge
CA Sanjiv Nanda, Smarthead Consultants
The date of payment Shall be earlier of:
• The date on which the recipient internet the payment in his books OR .
•The date on which the payment is debited from his bank account.
Illustration:-
1. Date of payment 15th July 2018.
2. Date of Invoice 15th May 2018.
3. Date of entry in books of receiver 18th July 2018.
The Time of supply of service in this case will be 15th May 2018.
If for some reason time of supply could not be determined supply under (1)
or (2) then it would be 18th July 2018 i.e, date of entry in books.
4) Details to Be Mentioned in the Tax Invoice by The Supplier.
The supplier must mention in his tax invoice if the tax is payble on
reverse charge.

22. Other Relevant Point Regarding Levy Of Reverse
Charge Mechanism (RCM)
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1) All persons procuring goods or service notified under Section
9(3) or Section 9(4) are mandatorily required to obtain GST
Registration.
2) “GST” levied under the Reverse Charge mechanism should be
deposited with the Govt. by the 20th of the next month.
3) “GST” paid under the Reverse Charge Mechanism would be
available for input Tax Credit if such goods and/or service are
used in the furtherance of business. The service recipient (i.e.
who pays reverse charge ) can avail input tax credit.
4) The Details of “ GST” paid under Reverse Charge
Mechanism (RCM) would not be auto- populated in the
GSTR 2 and these details would be required to be manually
furnished.

23. Other Relevant Point Regarding Levy Of Reverse
Charge Mechanism (RCM)
CA Sanjiv Nanda, Smarthead Consultants
5) In case where RCM in levied, the recipient shall raise an Invoice on
self. Invoice shall be issued on a dally basis for all consolidated
purchases made during the day on which “GST” is levied under
Reverse Charge . Section 31(3)(f)!]
6) At the time of payment to the supplier, the recipient shall also issue a
payment voucher for the made.
7) Input Tax Credit whit the recipient cannot be used for payment of
Reverse Charge of the Govt.
8) A Registered person will not loose input Tax credit of “GST” paid
Reverse Charge even if the payment is not made within 180 days.
9) Reverse Charge is also applicable to recipients registered under the
Composition Scheme. No Credit of RCM is available in such cases.
10) RCM is levied on advance payment as well.

24. Reverse Charge Case Study
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Consider a supply of cashews by an agriculturist to a buyer. Cashews are listed by
CEBC as goods that attract Reverse Charge.
Now let us assume that:
 The supplier dispatch the goods on 1st August.
 The buyer received the goods on August 5.
 The payment was made on 25th July (Advance Payment)
 Invoice was raised by the supplier on 1st August.
Time of Supply under reverse charge would be 25th July and must be included
by the buyer in his July Returns, even though the goods are received in August.
The buyer can input tax credit in the reverse charge.
The Seller needs to mention the reverse Charge tax applied in the tax invoice.
The aim of Reverse Charge is to bring unorganized sector into the tax
umbrella. It also removes the burden of tax compliance from individuals with
resources to large companies with enough resources.

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