What is Reverse Charge?

Reverse Change is a process under GST in which the receiver, makes the payment of GST instead of the supplier. In normal cases, the supplier is the one who pays tax on supplies, but in case of reverse charge, the role gets reversed. Here, the buyer pays taxes directly to the government. This happens in the case of import and other notified supplies.

When is Reverse Charge applicable?

The Reverse Charge is applicable in case of:

  • Services offered by an E-commerce aggregator/operator
  • Here the liability to pay taxes lies on the recipient of the services. If the recipient has no physical presence in the taxable area, the E-commerce operator will be liable to pay the tax.
  • Supply from an unregistered dealer
  • If a dealer is not registered under GST and is supplying goods to a registered buyer, then reverse charge will be applicable.
  • Supply of specific goods and services decided by the Government
  • Some of these goods and services are cashew nuts (not shelved or peeled), tobacco leaves, silk yarn, raw cotton, old and used goods, GTA services, legal services by an advocate, etc.

Registration

A person or a business who is required to pay tax under Reverse Charge has to compulsory register under GST. The threshold limit of 20 lakhs and ten lakhs for special category states does not apply to them.

Any purchases up to Rs.5000 from an unregistered supplier will not come under GST. Taxpayers have to check their daily expenses thoroughly and also analyze P/L accounts to check if any transactions fall under Reverse Change.

How does this apply to Deskera users?

When creating a new company on Deskera Books accounting software, indicate that your business enables reverse charge in sales transactions, if applicable.