Home » GST » Articles » Reverse Charge under the GST Law

Reverse ChargeThis discussion deals with the Reverse Charge under the GST Law. The GST Council in its meeting on 19 May, 2017 approved certain services to be covered under reverse charge category. Normally service provider is liable to collect tax from the service recipient and pay tax to the government treasury. These are also known as forward charge. Under reverse charge the service recipient pays tax directly to the Government instead of the service provider collecting tax from him and then paying to the Government. All the categories mentioned in the subsequent discussions would be subject to hundred per cent reverse charge i.e. applicable GST would have to be paid fully by the service recipient specified.

Goods Transport Agency

Mode of transportation on which reverse charge applicable: – Transportation by road. For other modes of transport the transporter needs to collect and pay tax to the Government.

Persons required to pay tax under reverse charge: – The following persons are required to pay tax under reverse charge with respect to GTA services: –

  1.  Any factory registered under or governed by the Factories Act, 1948.
  2.  Any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India.
  3.  Any co-operative society established by or under any law.
  4.  Any person registered under CGST/SGST/UTGST Act.
  5.  Any body corporate established, by or under any law.
  6.  Any partnership firm whether registered or not under any law including association of persons.

From the above it is clear that persons who are normally not required to pay tax under reverse (eg. Sole proprietorship) charge would also be required to pay tax under reverse charge if they are operating a factory or if they are registered under GST.

Advocate services:

Mode of service: – Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly.

Persons required to pay tax under reverse charge: – Any business entity will have to pay tax under the reverse charge.

For other category of service recipients advocates will have to collect and pay tax to the Government.

Arbitral Tribunal services:

Mode of service: – Services provided or agreed to be provided by an arbitral tribunal.

Persons required to pay tax under reverse charge: – Any business entity will have to pay tax under the reverse charge.

For other category of service recipients arbitral tribunal will have to collect and pay tax to the Government.

Sponsorship services:

Persons required to pay tax under reverse charge: – Anybody corporate or partnership firm will have to pay tax under the reverse charge. For other category of service recipients sponsor will have to collect and pay tax to the Government.

Services provided by government or local authority:

Services covered: – It is to be noted that many of the services provided by these authorities will not be covered under GST because they cannot be taxed vide Constitution of India. Services which fall in taxable category with the exception of the following services will be subject to tax under the reverse charge:-

  1. Renting of immovable property.
  2. 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 Government.
  3. Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport.
  4. Transport of goods or passengers.

For the aforesaid four services reverse charge is not applicable.

Persons required to pay tax under reverse charge: – Any business entity will have to pay tax under the reverse charge. For other category of service recipients Government or local authority will have to collect and pay tax to the Government.

Director:

Services covered: – Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate. It is to be noted where the director is an employee no GST is applicable at all. In other words only remuneration paid to non -executive and independent directors will be subject to GST and will have to be paid directly by the company or body corporate under the reverse charge.

Insurance Agent:

Services covered: – Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business will be covered under reverse charge. Insurance company will have to pay tax directly to the government. Insurance agent who is a service provider in this case will not have to collect tax from the insurer and pay to the Government.

Recovery agent:

Services covered: – Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company will be covered under reverse charge.
Bank/NBFC will have to pay tax directly to the government. Recovery agent who is a service provider in this case will not have to collect tax from the Bank/NBFC and pay to the Government.

Transportation from vessel outside India:

Services covered: – Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. Importer will have to pay tax under the reverse charge for such services. It is to be noted that reverse charge applicable in this case only when the service provider is located in a non-taxable territory.

Copyright services:

Services covered: – Transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works.

Persons required to pay tax under reverse charge: – Publisher, Music company, Producer required to pay tax under the reverse charge basis.

Cab aggregator services:

Services covered: – Radio taxi or Passenger Transport Services provided through electronic commerce operator.
Persons required to pay tax under reverse charge: – E-commerce operator. Taxi driver not required to collect and pay GST.

Service providers in non-taxable territory:

Services covered: – Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessee online recipient (OIDAR).
Persons required to pay tax under reverse charge: – Any person located in the taxable territory other than non-assessee online recipient (Business Recipient).

ca rishabhkumarThe author is a fellow member of the Institute of Chartered Accountants of India and also a qualified Company Secretary. The author has also done DISA(ICAI), certificate on IFRS (ICAI), Certificate on Forex and Treasury Management (ICAI), Certificate on Forensic Accounting and Fraud Prevention (ICAI). The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com or 91 9007909221 or Twitter @CARKBarmecha.
CA Rishabh Kumar Barmecha

Print Friendly, PDF & Email

3 thoughts on “Reverse Charge under the GST Law

  1. MOHIT KUMAR says:

    i am Mutual Fund Distributer (Main) am i eligble to under RCM

  2. Kamlesh Bhinde says:

    Is Mutual Fund Distributor (Sub Agent) cover under RCM?

    1. Ventakesh Raman says:

      Yes. If Sub agent commission cross Rs. 20 lakh

Leave a Reply

Your email address will not be published. Required fields are marked *

Name
Email
Website