Reverse Charge Mechanism
Reverse charge refers to a situation where the responsibility for paying Goods and Services tax(GST) is shifted from the supplier to the recipient of goods or services. Normally, when goods or services are supplied, it is the supplier who is responsible for collecting and paying the tax. However, under the reverse charge mechanism, this responsibility is reversed, and the recipient of the goods or services must pay the tax instead of the supplier. This applies to certain categories of supplies that are notified by tax authorities.
The reverse charge concept isn’t entirely new, as it was present under the old service tax system. However, implementing a 100% reverse charge represents a major shift. There are both advantages and disadvantages. For small buyers, it could create extra challenges as they have to handle tax payments that suppliers used to manage. But on a broader level, it could improve tax compliance across the country, increase transparency, and help reduce tax evasion.
By CA L.Muralidharan and CPA L.Mukundan
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