Reverse charge is a mechanism where the recipient of the goods and/or services is liable to pay GST instead of the supplier. In the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.
When is Reverse Charge applicable?
1 Supply from an unregistered dealer to a Registered Dealer
If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier.
Conditions For fulfilment of RCM
An unregistered dealer cannot make interstate supplies. This means that Reverse Charge in this case will apply only in case of intra-state supply by an unregistered dealer.
Only if the total supply from unregistered person exceeds Rs 5,000 in a day, then reverse charge will be applicable.
2 Supply of specific goods or services
Services through an e-commerce operator- If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.
Supply of certain goods and services specified by CBEC- CBEC has issued a list of goods and a list of services on which reverse charge is applicable.
Details to be mentioned in the tax invoice by the supplier
- The supplier must mention in his tax invoice if the tax is payable on reverse charge. Self-invoice (daily basis) for consolidated purchase made from unregistered persons during the day.
- The Government has made its intentions clear and has decided to exempt supplies worth Rs 5000/- per day from any Unregistered dealer which means Supplies above 5000 would require Registered Person to comply with the provisions as specified under GST law. For the supplies above 5000, A monthly consolidated bill can be issued.
- The Service Receiver that is Registered Person under GST is require to issue taxable invoice on its own that is Self invoicing under section 31(3)(f) of CGST act 2017.Self invoicing is required in order to avail Input tax credit on the Tax paid to government. As Possession of Invoice is a basic element in order to claim ITC of Tax paid against any supply.
Impact of raising self-invoicing
Not only the compliance of raising the invoice (Self invoicing) would increase, working capital would also get block which is the key requirement of Every business.There will not be any cost as such to the Registered dealer because the Tax paid in the current month can be availed in the following month.
Types of Invoices under GST
- Tax Invoice (Sec 31 (1) & (2)) – Rule 46 (Taxable Supply)
- Export Invoice (Sec 31 (1) & (2)) – Rule 46 (Zero Rated Supply)
- Revised Invoice sec 31(3)(a) - Rule 53 (For newly registered)
- Bill of Supply sec 31(3)(c) - Rule 49 (Exempt Supplies or in case of composition dealer)
- Receipt Voucher sec 31(3)(d) – Rule 50 (In case of receipt of advance payment)
- Refund Voucher – Sec 31(3)(e) – Rule 51
- Self-Invoice (RCM) – Sec 31(3) (f) – Rule 46
- Payment Voucher (RCM) – Sec 31(3) (g) Rule 52
Revised Invoice – Sec 31(3)(a) – Rule 53
- Debit / Credit Note – Sec 34 – Rule 53
- Consolidated Revised Invoice- Rule 53(2)
Self-invoicing under section 31(3)(f) of CGST act 2017
As per Sec 31(3) (f), a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 (Reverse Charge Mechanism) shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both.
Payment Voucher (RCM) – Sec 31(3) (g) – Rule 52
As per Sec 31(3) (g), a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall issue a payment voucher at the time of making payment to the supplier.
A payment voucher referred to in clause (g) of sub-section (3) of section 31 shall contain the details as specified in Rule 52 of CGST Rules, 2017.
Consolidated Revised Invoice- Rule 53(2)
As per Rule 53(2), the registered person may issue a consolidated revised tax invoice in respect of all taxable supplies made to a recipient who is not registered under the Act during such period.
Provided further that in the case of inter-State supplies, where the value of a supply does not exceed two lakh and fifty thousand rupees, a consolidated revised invoice may be issued separately in respect of all the recipients located in a State, who are not registered under the Act.
For the format and detail to be mentioned in Self-invoice under GST visit the below link