GST indirect taxation system introduced last year in July is still being streamlined to suit the needs of businesses and taxpayers. And as the reverse charge mechanism likely to be introduced is supposed to check the practise of tax evasion by small businesses, it is being condemned by businesses.
So what is this reverse charge mechanism?
As per this feature of GST, recipients instead of suppliers of goods and services need to pay the GST. And as quoted in one of the report Finance Ministry said, "We will soon implement reverse charge mechanism".
Against the normal scenario, wherein the supplier after adjusting for the input tax credit available deposits the tax received from the buyer of the goods or services with the government, reverse charge mechanism shifts the liability of tax payment shifts to receiver of goods and services or both.
Cases in which reverse charge becomes applicable
When an unregistered supplier under GST supplies to registered entity: The mechanism of reverse charge comes into play in such a case and liability to pay tax comes with the receiver of goods and services. For the purchases, the registered entity needs to do self-invoicing.
Services are being rendered by e-commerce player: In such a case the GST liability arises on e-commerce operator and the companies after collecting the tax from customers need to deposit with the government. For instance, Amazon needs to pay GST instead of the several products sellers on the platform.
For some of the goods and services specified by the CBEC: The body has come out with a list of goods and services on which the reverse charges mechanism will become applicable.
The mechanism has been deferred till March 31, 2018 and small businesses are against the procedure due to additional compliance. But government sees the mechanism to work in its favour as small businesses shall not be able to hide actual turnover and profits. Plus the centre shall be able to arrive at the turnover numbers of these concerns with more appropriateness.
The mechanism is expected to increase the scope or application of GST in unorganized sector and boost tax collection.