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Normally, Seller Collects GST from Buyer and Pays to Government

However, in some cases, Buyer Pays GST Directly to Government

This is called Reverse Charge in GST

Example

Suppose A provides Service to B of 100000+GST 18000

In this case, B will pay A Rs 118000 and deposit to Government

 

However, in Case of Reverse Charge,

A will provide Service to B of 100000

In this case, B will pay A Rs 100000 and deposit remaining directly to Government

RCM Normal charge image.jpg


GST in Case of Goods

Earlier Reverse Charge was applicable in Case of Services only (in Service Tax)

It was not applicable in case of Goods (There was no reverse charge concept in Vat)

However, now in GST, it is applicable in Goods Also

 

Example

X Sold Goods to B of Rs 100000 Suppose GST Rate is 5%, X will sell goods to Y for Rs 100000 + GST 5% = 105000

Y will pay X Rs 105000 and X will pay 5000 to Government

 

However , If X is Unregistered in GST, then X cannot charge GST on it Then Reverse Charge will also be applicable on it

Y will pay X 100000 and deposit 5000 Directly to Government

GST Reverse and normal charge Image 2.jpg

When is Reverse Charge Applicable?

It is applicable as per Section 9(3) and Section 9(4)

  1. Section 9(4) - Purchases from Unregistered Dealer were covered here Local Purchases upto 5000 per day were exempt.
  2. Section 9(3) - Certain Goods and Services notified by Government were covered like Goods Transport Agency, Freight etc.

As per decision in GST Council Meeting Section 9(4) has been stopped by Government However, Section 9(3) is still applicable. Hence GST is still applicable on following services

Earlier now Reverse charge.jpg

 

Reverse Charge Chart

Reverse charge chart.jpg

 

Reverse Charge on Goods

Reverse charge goods.jpg

 

Whether we get input of Reverse Charge?

On Certain Items, No Input will be available like Food, Catering, etc

On Other Items, Input Available Next Month

GTA Bill of My Co. 10000.jpg

GTA Service To Unregistered Person Exempted

Earlier If Goods Transport Agency (GTA) provided services to Unregistered Persons, they had to pay GST

Because of this GTA were not willing to supply services to Unregistered persons.

Now,

This service has been exempted.

 

GTA Registered Person.jpg

What will be entry of Reverse Charge?

It depends upon whether we get Input of

Ajay Transport

Bill to My Co.

A LTD

Freight Charges

100000

TOTAL

100000

 

Suppose GST Rate is 5% (2.5% CGST, 2.5% SGST)

Entry

Case 1  

                Bill Received on 10 April

                Payment made on 29 April

-a-

No Input of Reverse Charge Input Available of Reverse Charge

10 April               

            Freight Exp Dr.   100000

               To Ajay Transport    100000

29 April

           Ajay Transport   100000

                          To Bank       100000

 

30 April

          Reverse Charge Exp Dr. 5000

                 To Output CGST         2500

                 To Output SGST         2500
                        (100000 ×  2.5%)

 

After paying GST

Output CGST Dr.   2500

Output SGST Dr.   2500

                      To Bank      5000

10 April               

                Freight Exp Dr.   100000

                        To Ajay Transport   100000

29 April

                Ajay Transport   100000

                                To Bank       100000

 

30 April

Input CGST (Deff) Dr.      2500

Input SGST (Deff) Dr.      2500

                To Output CGST                2500

                To Output SGST                2500

 

After paying GST

Output CGST Dr.   2500

Output SGST Dr.   2500

                      To Bank      5000

 

Input CGST Dr.   2500

Input SGST Dr.   2500

                To Input CGST (Deff)    2500

                To Input SGST (Deff)    2500

-ea-

Case 2

                Bill Received on 10 April

                Payment not made within 60 Dys

-a-

  No Input of Reverse Charge Input Available of Reverse Charge

10 April               

                Freight Exp Dr.   100000

                       To Ajay Transport    100000 

30 June

                Reverse Charge Exp Dr. 5000

                        To Output CGST         2500

                        To Output SGST         2500
                        (100000 ×  2.5%)

 

After paying GST

Output CGST Dr.   2500

Output SGST Dr.   2500

                      To Bank      5000

10 April               

                Freight Exp Dr.   100000

                        To Ajay Transport   100000 

30 June

Input CGST (Deff) Dr.      2500

Input SGST (Deff) Dr.      2500

                To Output CGST                2500

                To Output SGST                2500

 

After paying GST

Output CGST Dr.   2500

Output SGST Dr.   2500

                      To Bank      5000

 

Input CGST Dr.   2500

Input SGST Dr.   2500

                To Input CGST (Deff)    2500

                To Input SGST (Deff)    2500

-ea-

Case 3

               First Payment in Advance  on 25 April then Bill Received later on 18 june

-a-

No Input of Reverse Charge Input Available of Reverse Charge

25 April               

               Ajay Transport   100000

                                To Bank       100000

30 April

                Reverse Charge Exp Dr. 5000

                        To Output CGST         2500

                        To Output SGST         2500
                        (100000 ×  2.5%)

 

After paying GST

Output CGST Dr.   2500

Output SGST Dr.   2500

                      To Bank      5000

 

 

 

 

 

 

18 June   

              Freight Exp Dr.   100000

                       To Ajay Transport    100000

25 April               

               Ajay Transport   100000

                                To Bank       100000

30 April

Input CGST (Deff) Dr.      2500

Input SGST (Deff) Dr.      2500

                To Output CGST                2500

                To Output SGST              2500

 

After paying GST

Output CGST Dr.   2500

Output SGST Dr.   2500

                      To Bank      5000

 

Input CGST Dr.   2500

Input SGST Dr.   2500

                To Input CGST (Deff)    2500

                To Input SGST (Deff)    2500

 

18 June

               Freight Exp Dr.   100000

                       To Ajay Transport    100000

-ea-

When is Output GST Payable, on Bill or Payment?

It depends upon Time of Supply of Goods and Services

Time of Supply Reverse Charge of Goods Time of Supply Reverse Charge of Services

We have to consider earlier of
• Date of Payment
• 30 Days of Invoice
• Date of Receipt

We have to consider earlier of
• Date of Payment
• 60 Days of Invoice

 

Whether Input can be used to Pay Reverse Charge Liability

No we have to deposit GST Reverse charge Liability from cash Ledger

We cannot reduce it from Input Tax Credit available to us

 

Example

Output GST on Sales 100

Output GST on Reverse Charge 30

Total Output 130

Input GST 110

 

In this case,

We have to Pay GST on Reverse Charge of 30

We can adjust input of 100 against our Output

Remaining 10 we can carry forward

 

Download in PDF

  1. GST - Goods and Services Tax, India
  2. GST Computation & Accounting
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About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 7 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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