Reverse charge mechanism

REVERSE CHARGE MECHANISM
Sandesh Mundra & Associates, Prepared by - Nikita Lakhotia

What is Reverse Charge?
 Generally, service provider is liable for payment of service
tax.
 CG notified in terms of sec 68 that even service receiver is
also liable to pay service tax. This is what we term as
Reverse Charge Mechanism.

36/2004
30/2012
7/2015
Service Covered
• In relation to communication through Telephone or pager or
telegraph or telex
• General Insurance Business
• Insurance Service by Insurance Agent
• Goods Transport Agency Services
Replaced notification no. 36/2004 and
covered additional services under
RCM
Amendment of notification no. 30/2012 and added some more
services under the regime of Reverse Charge
Sandesh Mundra & Associates,
Prepared by - Nikita Lakhotia

Point of taxation
POT under Reverse
Charge
In case of advance
payment
Date of payment
In case of service
provide & invoice
received
Amount paid within
3 months
Date of such
payment
Amount not paid
within 3 months
Date of invoice
following the said
period of 3 monthsSandesh Mundra & Associates,

Services Covered :-
Service Name Service Name
Insurance Services Goods Transport Agency Services
Sponsorship Services Director Services
Legal Services Government Services
Rent – a – Cab Services Manpower Supply Services
Works Contract Services Security Services
Recovery Agent Services Mutual Fund Services
Lottery Services Aggregator Services
Arbitral Tribunal Services Import of Services

Insurance Services
Service Provider =
Insurance Agent
Service Receiver =
Person Carrying on
Insurance Business
RCM
Applicable

Goods Transport Agency
Services
• Goods Transport
Agency
Service Provider
• As Mentioned in
Note
Service Receiver
• Applicable
RCM
Note…
 Any body Corporate registered under
any law
 Any partnership firm including LLP and
AOP
 Any excisable goods dealer registered
under Central Excise Act, 1944
 Any co-operative society established
under any law
 Any society registered under Societies
Registration Act, 1860
 Any factory registered under Factories
Act,1948
Exemption…
 Single Consignment - Rs. 1500
 More than one consignment – Rs. 750

Sponsorship Services
Service Provider Any Person
Service Receiver Partnership Firm or Body
Corporate
Rate of Tax
(w.e.f. 15-11-2015)
14.5%
 “sponsorship” includes naming an event after the sponsor, displaying the sponsor’s company logo or
trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for
competition; but does not include any financial or other support in the form of donations or gifts, given
by the donors subject to the condition that the service provider is under no obligation to provide
anything in return to such donors;

Director Services
Service Provider =
Director
(Individual)
Service Receiver
= Company
RCM
Applicable
He should not be
into Employee-
Employer
Relationship

Legal Services
 Provided by an advocate or firm of advocates
 Includes any Service of Advice, Consultancy,
Assistance or Representational Service before any
court, tribunal or authority
 Received by business entity i.e. Partnership, BOI,
LLP, Body Corporate, Individual
(“Business entity means any person ordinarily
carrying out any activity relating to industry,
commerce or any other business, or profession”)

Legal Services
Let us Understand this with the help of the table
illustrated :
Provider Receiver Applicability
Service Provided by an
Advocate or Firm of
Advocate
Service receiver being an
Advocate or Firm of
Advocate
Exempt as per Notification
No. 25/2012 Entry No.
6(b)(i)
Service Receiver being
business entity but
turnover in PFY upto Rs.
10 Lakhs
Exempt as per Notification
No. 25/2012 Entry No.
6(b)(iii)
Service Receiver being
Business Entity
RCM Applicable @ 14.5%
to receiver

Government Services
Law upto 31-03-2016
 Support service provided by Government/Local Authority to Business Entity
(Partnership, LLP, BOI, Body Corporate, Individual)
Law wef 01-04-2016
 Any service provided by Government/Local Authority to Business Entity
(Partnership, LLP, BOI, Body Corporate, Individual)
 Exemption : Services provided by Government or a local authority to a business
entity with a turnover up to rupees ten lakh in the preceding financial year -
Notification No. 7/2016 (w.e.f. 01-04-2016)

Exclusion :
 Government Services covered under Negative List :
 Service in relation to aircraft or vessel
 Transport of goods or passenger
 Services by department of post
 Following service provided by government are not included under RCM
 Renting of Immovable Property
 Services provided by Companies or corporations formed by the government
are not considered as the service provided by government.
Government Services

Provider not Availing
CENVAT Credit
(ST not charged in
invoice raised)
Provider Availing
CENVAT Credit
(ST charged in
invoice raised)
Provider = Ind,
HUF, P’ship, LLP,
AOP
Receiver = Body
Corporate
SR liable to
pay 100% tax
(On abated
value)
SP liable to
pay 50% tax
(On non
abated value)
SR liable to
pay 50% tax
(On non
abated value)
Renting of Motor Vehicle Services
Rate =
5.8%
Rate =
7.25%
Rate =
7.25%

Manpower Supply
Services
Service Provider = Individual, HUF,
Partnership, AOP, LLP
Service Receiver = Business Entity
Registered as Body Corporate
RCM Applicable @ 14.5%Sandesh Mundra & Associates,

Works Contract Services
Description of
Service
Service
Provider
(Portion
Taxable)
Service
Receiver
(Portion
Taxable)
Effective Rate to Service
Provider
Effective Rate to Service
Receiver
Original Work
Individual,
HUF,
Partnership,
AOP, LLP
(50%)
Business
Entity
Registered
as Body
Corporate
(50%)
Rate = 2.90%
(100*50%*40%*14.5%)
Rate = 2.90%
(100*50%*40%*14.5%)
Only Labour Portion
Rate = 7.25%
(100*50%*14.5%)
Rate = 7.25%
(100*50%*14.5%)
Maintenance, Repair,
Reconditioning,
Completion &
Finishing Services
Rate = 5.08%
(100*50%*70%*14.5%)
Rate = 5.08%
(100*50%*70%*14.5%)
Sandesh Mundra & Associates, Prepared by – Nikita Lakhotia

Security Services
Service Provider
Individual, HUF, Partnership,
LLP, AOP
Service Receiver
Business Entity Registered
as body corporate
RCM
Applicable @ 14.5% to
Receiver
“Security agency” means any person engaged
in the business of rendering services relating to
the security of any property, whether movable
or immovable, or of any person, in any manner
and includes the services of investigation,
detection or verification, of any fact or activity,
whether of a personal nature or otherwise,
including the services of providing security
personnel.

Recovery Agent
Services
Service
Provider
Service
receiver
Payable by
Service
Provider
Payable by
Service
Receiver
Effective
Date
Recovery
Agent
NBFC,
Banking
Company,
Financial
Institutions
NIL 100%
(14.5%)
July 11, 2014
Sandesh Mundra & Associates, Prepared by – Nikita Lakhotia

Mutual Fund Services
“A”
A Mutual Fund
Agent
“B Ltd”
Mutual Fund
Management
Company
Provide
Service to
Tax
B Ltd is liable to
pay service tax

Lottery Services
 Provided by lottery selling or marketing agent
 Provided to Lottery distributor or selling agent
 Effective Date being April 1, 2015
 Liability arises 100% on service receiver

Aggregator Services
 “Aggregator means a person who runs and manages a web based software application, and
by means of the application and a communication device, enables a potential customer to
connect with persons providing service under the brand name or trade name of the
aggregator”
 Service provided by a person involving an aggregator in any manner.
 For eg. if a person pays Rs. 100 to aggregator for availing cab service and later on the
aggregator pays Rs. 90 to the cab owner and retain Rs. 10 as his commission, then service
tax will be paid by aggregator under reverse charge on Rs. 100
 Further if whole amount of Rs. 100 is received by cab owner and later on he pays the
commission of Rs. 10 to aggregator, the amount at which aggregator is liable to pay service
tax under reverse charge is Rs. 100

Aggregator Services
Presence of Aggregator
Physically present in India
Aggregator of the service
Not present in India
Having representative in India
Any person representing the
aggregator for any purpose shall
be liable to service tax
Not having any representative in
India
Any person appointed by the
aggregator for the purpose of
paying service tax shall be liable

Arbitral Tribunal Services
Service
Provider =
Arbitral
Tribunal
Service
Receiver =
Business Entity
RCM Applicable
to Business
Entity
Note : Fees paid to any court or tribunal established under
any law is excluded from the definition of service as per
section 65B(44)(c)

Import of Services
Provide
service to
Taxable territory Non-Taxable Territory
“A”
Service
provider
“A”
Service
Receiver
“B”
Service
provider
“B”
Service
Receiver
Receive
service from
Tax
Export Service -
Exempt – Subject to
Conditions specified
Tax
“A”
Liable to pay service
tax

 Person paying service tax under RCM can avail
CENVAT Credit for services provided.
 CENVAT Credit can be availed for output services
only when the payment is made for service tax.
 Benefit of CENVAT cannot be availed for
discharging ST liability under Reverse Charge
Mechanism.
CENVAT Credit
Availment

Reverse charge mechanism

More Related Content

What's hot

Viewers also liked

Similar to Reverse charge mechanism

More from sandesh mundra

Recently uploaded

Reverse charge mechanism