Reverse charging mechanism a procedural way of discharging tax liabilities and formalities by buyer of services or goods or both instead of seller.
For example, a transaction will be considered as reverse charge if tax is payable by buyer instead of seller.
GST reverse charging provisions are covered under different sections and rules. Government has also released the list of services when received tax liability should be discharged by recipient instead of service provider.
As on the date of writing this article Reverse Charging provisions are applicable to following transactions:
You can read reverse charging on dealings with unregistered persons.
If you as a recipient of services or goods or both are liable to pay tax under reverse charge mechanism, you have to comply with all the provisions applicable under GST to a registered person.
For example, following procedural as well as documentary functions are performed when a registered person makes a supply.
Above are the general functions that a registered person has to perform to comply with law. When you pay under RCM, it becomes your obligations to comply with these rules.
You must be aware that under GST tax liability arises of time of supply. So to find out the point at which you will be liable to charge tax on supplies received and fall under RCM, you first need to check the time of supply.
In case of RCM, the time of supply is earliest of:
If you are not able to find the time of supply as per above list then time of supply will the date on which you account the transaction in your books of accounts.
Let us understand this concept of charging tax under RCM with an example:
|Particular||Receipt of Goods||Date of payment||
Date following 30 days
|Time of supply(Taxable event)|
|Receipt of Goods||01/09/2017||10/09/2017||30/09/2017||Earliest of 3 - 01/09/2017|
|Receipt of Goods||15/09/2017||01/09/2017||30/09/2017||01/09/2017|
|Receipt of Goods||01/12/2017||01/09/2017||30/09/2017||01/09/2017|
In case of services the time of supply should be earliest of:
In case of import of services from associated parties, the time of supply should be earliest of:
As an accounting professional, the first thought that comes to our mind is how to account tax paid under reverse charge.
Before moving to accounting treatment and entries that should be posted lets understand some basic points.
Considering above points, I suggest to have a separate accounting ledger specifically for tax paid under Reverse Charge and should not be clubbed with normal tax ledgers.
Normally you would have following ledgers for GST:
CGST Output Tax SGST Output Tax IGST Output Tax CGST Input Tax SGST Input Tax IGST Input Tax
In my opinion we should have different ledger for tax paid under Reverse Charge as:
SGST Output Tax-RCM CGST Output Tax-RCM IGST Output Tax-RCM CGST Input Tax-RCM SGST Input Tax-RCM IGST Input Tax-RCM
Entry to be posted at the time of supply.
Payable/Vendor A/c Credit Purchase/Expense A/c Debit SGST Output Tax-RCM Credit CGST Output Tax-RCM Credit IGST Output Tax-RCM Credit GST Input Tax-RCM Debit
At the time of payment of tax charged on reverse charge basis:
SGST Output Tax-RCM Debit CGST Output Tax-RCM Debit IGST Output Tax-RCM Debit Bank A/c Credit CGST Input Tax-RCM Debit SGST Input Tax-RCM Debit IGST Input Tax-RCM Debit GST Input Tax-RCM Credit
Above entries are a draft proposal. These can be accounted in a better manner by transferring balance of each account in a
Tax Payable Ledger.
A Chartered Accountant by qualification. I am founder of KnowyourGST.com to provide free resources to enable smooth compliance by Tax Payers. You can use GST Invoicing application developed by m...Contact
Very useful information thanks.
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