Input Tax Credit under Reverse Charge Mechanism

GOOD AND SERVICE TAX (GST)

Reverse charge is a mechanism under which the recipient of the goods or services is liable to pay tax instead of the provider of the goods and services. Under the normal taxation regime, supplier of Goods or Service collects the tax from the buyer of Goods or Service and deposits the same after adjusting the output tax liability with the input tax credit available.But under reverse charge mechanism, liability to pay tax shifts from supplier to recipient.

Scope of Reverse Charge Mechanism

If a person not registered under GST supplies Goods or Services to a person who is registered under GST, then in such cases – Reverse Charge Mechanism would get applicable i.e. the GST would be required to be paid by the Recipient of Goods or Service directly to the Govt on behalf of the supplier. Reverse Charge Mechanism would get applicable only if the total supply from unregistered person exceeds Rs 5,000 in a day. An unregistered dealer cannot make interstate supplies. This means that Reverse Charge will apply only in case of infra-state supply by an unregistered dealer. All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold limit.

Input Tax Credit under Reverse Charge Mechanism

Tax paid on reverse charge basis will be available for input tax credit if such goods or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit.

Time Of Supply For Goods Under Reverse Charge Mechanism.Time of supply will be the earliest of the following dates:When the goods are received i.e. the date of receipt.When the amount is paid i.e. the date of payment. Date of payment shall be earliest of ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.The date immediately after 30 days from the date the supplier issues invoice.If the assess fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient enters in his books of account.Time of Supply for Services Under Reverse Charge.Time of supply will be the earliest of the following dates.When the amount is paid i.e. the date of payment. Date of payment shall be earliest of – ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.The date immediately after 60 days from the date the supplier issues invoice.If the assesses fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient of service enters in his books of account.
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