Reverse charge is a mechanism where the recipient of goods or services is liable to pay Goods and Services Tax (GST) instead of the supplier. This mechanism is used to widen the scope of levy of tax on various unorganized sectors, to exempt specific classes of suppliers, and to tax the import of services. The liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

Under the reverse charge mechanism, the recipient of goods/services must be registered under GST. The supplier must clearly mention on the invoice that the tax payable for that specific transaction is through reverse charge. The time of supply for a transaction is the date on which taxes are levied upon the supplies. The time of supply under reverse charge will be the earliest of the following dates: date of receipt of goods or date of payment.

Only certain types of business entities are subject to the reverse charge mechanism. Section 9(3), 9(4) and 9(5) of Central GST and State GST Acts govern the reverse charge scenarios for intrastate transactions. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST Act govern the reverse charge scenarios for inter-state transactions.

Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis. The supplier cannot take Input Tax Credit (ITC) of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax.

In summary, reverse charge is a mechanism where the recipient of goods or services is liable to pay GST instead of the supplier. The recipient must be registered under GST, and the supplier must clearly mention on the invoice that the tax payable for that specific transaction is through reverse charge. The time of supply under reverse charge will be the earliest of the dates of receipt of goods or payment. Advance paid for reverse charge supplies is also leviable to GST, and the supplier cannot take ITC of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax.