Time of supply of Services on Reverse Charge in GST

By Registrationwala

9th May 2017

 

Under the reverse charge mechanism, the beneficiary or purchaser of services needs to pay tax to the credit of the government not at all like forward charge, where the supplier needs to pay taxes to the government

What is Reverse Charge Mechanism?

Under the reverse charge mechanism, the beneficiary or purchaser of services needs to pay tax to the credit of the government not at all like forward charge, where the supplier needs to pay the tax. Let us Take an Example:- If an Individual is availing a transportation service, then the recipient of the service needs to pay service tax to the government.

Why Reverse Charge Mechanism?

Keeping in mind the end goal to guarantee that the tax is collected on the sale of goods or services from various unorganized sectors, the government presented the Reverse Charge Mechanism. Under this, the risk to pay tax rests with the service recipient. This has helped the government to track and assessment those taxable services which were so far not traceable.

Impact of reverse charge mechanism

While this thought process of government has added to increment in the tax revenue, it has likewise brought about a complex effect on small service providers. An individual giving taxable service ought to be enrolled under Service Tax if the taxable value of the services rendered surpasses Rs 10 lakhs.

Be that as it may, an individual subject to pay Service Tax under the reverse charge mechanism ought to be compulsorily enlisted. Because of this, he will be not be qualified for the exclusion which is accessible to small service providers.

Also, the payment of Service Tax liability under the reverse charge mechanism is to be released in cash/bank. This infers regardless of the possibility that the business has input service tax credit or CENVAT credit; they can't be utilized to release the tax liabilities of reverse charge mechanism, there by affecting the income of the business.

Reverse Charge under current Regime

Under the current indirect tax regime, on the certain notified classification of services, service tax should be paid on reverse charge basis. The weight of tax liability under reverse charge, contingent upon nature of service the liability is totally on the beneficiary of service or incompletely on the service provider and beneficiary of service. Following are some examples for further understanding:-

1. Complete Reverse Charge Mechanism

The whole obligation to pay tax on taxable services is on the services recipient. The service recipient's needs to pay 100% of the tax liability to the central government.

Let us suppose UR Nutrition agency availed transportation services from Kartar Transports and Maintenance for a sum of Rs.50000. “Transportation of Goods by Roads” in service tax is covered under reverse charge and service recipient is subject to pay the complete tax on the transportation service.

As needs be, on availing transportation services UR Nutrition Agency needs to pay Service Tax of Rs.7,500 (15% of Rs 50,000) to the central government.

2. Partial Reverse Charge Mechanism

The obligation to pay taxes is partly on the service provider and partly on the service recipient. The Service Tax is circulated between the service provider and service recipient, and both will be liable to pay service tax to the central government of India.

For instance, UR Nutrition Agency availed security administrations from M-Hawk Security Agency. For the time of April, M-Hawk Security Agency charged UR Nutrition Agency for Rs 1, 00,000. Under Service Tax, 'Supply of labour for any reason or security services' s part of list of service under reverse charge, and both, the service provider and service recipient, are liable to pay tax in the proportion of 25:75%(25% on service provider and 75% by the recipient of services).

Read More on:-Time of supply for Services on forward Charge

Appropriately, M-Hawk Security Agency charged a service tax of Rs. 3,750 on 25% of the taxable service value i.e. Service Tax @ 15% on Rs. 25,000(1,00,000*25/100). What's more, the rest of the service tax of Rs. 11,250 on 75% of the taxable service value i.e. Service Tax @ 15% on 75,000 ( 1,00,000*75%/100) is to be paid by UR Nutrition Agency.

Point of Taxation on Reverse Charge

Date of Payment

Earliest of the date of payment entered in books of records or the date on which payment is credited to the bank account.

3 months from invoice date

On the off chance that installment is not made by the recipient to service providers inside 3 months, the point of taxation will be the date instantly taking after the expiry of 3 months.

 

 


Invoice Date

Payment Date

Taxation Point

Explanation

20th June 2017-05-09

10th June 2017-05-09

10th August 2018-05-09

Payment Date is Earlier than 3 months from Invoice Date

1st June 2017-05-09

10th November 2017-05-09

1st September 2018

 

As the payment is not made within 3 months, point of taxation will be the date following the expiry of 3 months from the date of invoice 

Reverse Charge under GST Regime

In Goods and Service Tax, deciding the purpose of tax collection is alluded under 'Time of Supply' provisions. The determination of the time of supply for services under reverse charge in GST is much like to the provisions of the point of taxation under Service Tax, except that the payment window is reduced to 60 days from 3 months from the date of receipt.

An individual subject to pay taxes under reverse charge mechanism requires compulsory registration. The effect of reverse charge on these businesses is relied upon to proceed too.

The liability of GST (CGST and SGST or IGST as applicable) will emerge as demonstrated as follows:

Date of Payment

Earliest of the date of payment entered in books of records or the date on which payment is credited to the bank account.

60 days from Invoice Date

On the off chance that installment is not made by the recipient to service providers inside 2 months, the point of taxation will be the date instantly taking after the expiry of 2 months.

 

 


Invoice Date

Payment Date

Time of supply of Service

Explanation

20th June 2017-05-09

10th June 2017-05-09

10th August 2018-05-09

Payment Date is Earlier than 3 months from Invoice Date

1st June 2017-05-09

10th November 2017-05-09

1st September 2018

 

60 days from date of invoice is earlier than the date of payment. Hence time of supply will be 1st September 2018

 

 

 

Time of supply of Services on Reverse Charge in GST

2017-05-09