A Guide to Reverse Charge Under GST

As we all are aware of the fact that GST has taken over all the indirect taxes with one and unifies tax which is known as Goods and Services Tax. The entire taxation reform is new to everyone currently living in India. That’s the reason there is lack of understanding within the people regarding the new taxation regime. There are several terms that you as a business person should know to calculate gain or profit such as understanding the procedure of filing taxes and claiming returns, how to avail the benefit of ITC and so on. One such important component of GST is the Reverse Charge mechanism of which most of us are still unaware. Reverse charge is a liability to pay tax by the taxpayer who is receiving goods and services rather than the person who is supplying them. However, it is followed under some cases of supplies and is not entirely followed. It is applicable for both goods and services. To gain proper understanding of reverse charge mechanism, read this guide which explains everything about reverse charge. Take a look. 

Purpose of Reverse Charge under GST

According to the GST bill latest news, the main purpose of the Government to implement reverse charge under GST is to increase tax compliance and tax revenues so that Government is able to collect tax from various unorganized sectors such as goods, transport and so on. Through reverse charge, it is expected to increase the tax collection.

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When Reverse Charge is Applied?

Reverse charge is applied to people who comes under certain terms and conditions such as:

  • When the unregistered dealer supplies goods and services to a registered dealer. Therefore, for such supplies the registered recipient of supplies will be charged GST on a reverse charge basis.
  • Reverse charge is applicable on certain services on which the GST has to be paid by the recipient on 100% reverse charge basis: Arbitral Tribunal, Goods Transport Agencies, Services of a director to a company, Non-resident service provider, Permitting use of Copyright, Insurance agent, Sponsorship Services, and Transportation Services on Import.

Provisions for Reverse Charge under GST

Registration

Every taxable person who is earning more than 20 lakhs annually, needs to get registered under the GST. Those people who are involved in the making of supplies of taxable goods and services are exempted whereas the recipient of such goods and services will have to pay the reverse charge on such supplies.

Invoicing

According to the upcoming GST bill latest news, every person paying tax on the basis of reverse charge has to include that amount in his tax invoice that is going to be issued. A registered person who is liable to pay tax via reverse charge basis needs to issue an invoice mandatorily in contrast to the goods and services he or he is receiving with the person who isn’t registered under the GST.

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Exemption

Any person whose annual income is less than the threshold limit of 20 lakhs is exempted from getting registered under the GST and paying tax irrespective whether he or she is dealing with the supplies of good and services.

Composition Scheme under GST

Composition scheme is one of the best components of the GST. It is for the people who are earning more than 20 lakhs in a financial year but at the same time less than 75 lakhs, you can get register in the composition scheme under the GST. In this scheme, you need to pay nominal tax amount and thus it gives chance to small businesses to grow and more and stand alone in the competitive market. However, the scheme is not for people who earn more than 75 lakhs and so they need to get registered as a regular taxpayer.

The Final Word

Reverse charge mechanism is a bit complex and needs proper understanding of GST. It is therefore necessary to learn about the provisions, eligibility and keep yourself updated according to the GST bill details. This will not only help you to gain more knowledge about the taxation reform but also help you in doing businesses from one state to another. There are still a lot of components that needs to be mention such as bill of supply, place of supply and the time of supply which is necessary for dealing with the supplies of goods and services within the state as well as outside the state in multiple locations. Also, the understanding of the number of times you need to get registered if you’re running an e-commerce business is of utmost importance. It’s advisable to learn about GST and then get registered under the process to simplify your life.

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