Reverse Charge Tax Liability under GST Law

Reverse charge means the liability to pay tax by the person receiving goods and / or services instead of the person supplying the goods and / or services (Section 2(85). Following are the frequently asked question on reverse charge under upcoming GST Law:

Q 1. What are the benefits available to small tax payers under the GST regime?
Ans. Tax payers with an aggregate turnover in a financial year up to [Rs.10 lakhs] would be exempt from tax [Aggregate turnover shall include the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST.] Aggregate turnover shall be computed on all India basis. For NE States and Sikkim, the exemption threshold shall be [Rs. 5 lakhs]. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (ITC) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.

Q 2. What is the scope of composition scheme under GST?
Ans. Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for CGST and SGST shall not be less than [1%]. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter- state supplies or
paying tax on reverse charge basis shall not be eligible for composition scheme.

Q 3. Is the reverse charge mechanism applicable only to services?
Ans. No, reverse charge applies to supplies of both goods and services.

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Q 4. What will be the implications in case of purchase of goods from unregistered dealers?
Ans. The receiver of goods will not be able to get ITC. Further, the recipients who are registered under composition schemes would be liable to pay tax under reverse charge.

Q 5. How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?
Ans. The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’
means ‘Value of all supplies (taxable and non-taxable supplies + Exempt supplies + Exports) and it excludes Taxes
levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse
charge of a person having the same PAN.

Q 6. What is aggregate turnover?
Ans. As per section 2 (6) of the MGL, aggregate turnover includes the aggregate value of:

(i) all taxable and non-taxable supplies,
(ii) exempt supplies, and
(iii) exports of goods and/or service of a person having the same PAN.

The above shall be computed on all India basis and excludes taxes charged under the CGST Act, SGST Act and the IGST Act. Aggregate turnover does not include value of supplies on which tax is levied on reverse charge basis, and value of inward supplies.

Q 7. What is time of supply of service in case of tax payable under reverse charge?
Ans. The time of supply will be the earliest of the following dates:

a) date of receipt of services;
b) date on which payment is made;
c) date of receipt of invoice;
d) date of debit in the books of accounts by supplier.

Q 8. Who is liable to pay GST?
Ans. In general the supplier of goods or service is liable to pay GST. However in specified cases like imports and
other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Further, in
some cases, the liability to pay is on the third person (say in the case of e-commerce operator responsible for TCS or
Government Department responsible for TDS).

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Q 9. Can GST paid on reverse charge be considered as input tax?
Ans. Yes. The definition of input tax includes the tax payable under sub-section (3) of section 7 (Reverse Charge). The credit can be availed if such goods and/or services are used, or are intended to be used, in the course or furtherance of his business.

[Above contents are complied on the basis of study material issued by CBEC.]