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Published on:
February 23, 2023
By
Paramita

Reverse Charge under GST on Transaction between Registered  Unregistered Person

Under the Goods and Services Tax (GST) regime, the concept of Reverse Charge is one that has been introduced to shift the responsibility of paying tax from the supplier to the recipient. It is applicable in cases where the supplier is unregistered, or for certain specified goods and services.

One of the most common areas where the concept of Reverse Charge is applicable is in transactions between registered and unregistered persons. In this article, we will take a closer look at what Reverse Charge means in this context, and how it works.

What is Reverse Charge?

Before we dive into the specifics of Reverse Charge under GST, let’s first understand the concept of Reverse Charge itself. Put simply, Reverse Charge is a mechanism under which the recipient of goods or services is liable to pay the tax on behalf of the supplier.

The idea behind this mechanism is to ensure that tax is paid even in cases where the supplier is not registered, or is unable to pay the tax themselves. By shifting the responsibility of paying tax to the recipient, the government can ensure that all transactions are taxed and reported correctly.

Reverse Charge under GST on Transactions between Registered and Unregistered Persons

Now that we understand what Reverse Charge is, let’s take a closer look at how it works in the context of transactions between registered and unregistered persons. In such cases, the recipient of the goods or services is the registered person, while the supplier is unregistered.

According to the GST laws, the registered person is required to pay the tax on behalf of the unregistered supplier, under the Reverse Charge mechanism. This means that the registered person will have to calculate the tax payable, and pay it to the government on behalf of the unregistered supplier.

It is important to note that this mechanism is applicable only in cases where the value of the goods or services being supplied exceeds Rs. 5000. If the value is less than Rs. 5000, the registered person need not pay tax under Reverse Charge.

Impact on Registered Persons

For registered persons, Reverse Charge can have a significant impact on their business operations. Since they are required to pay tax on behalf of the unregistered supplier, they will need to ensure that they have adequate funds to cover these taxes.

This can be a challenge for small and medium-sized businesses, especially those that operate on low margins. In addition, the administrative burden of calculating and paying taxes under Reverse Charge can be significant, and may require additional resources.

Conclusion

Reverse Charge under GST is a mechanism that has been introduced to ensure that tax is paid even in cases where the supplier is unable to pay it themselves. In the context of transactions between registered and unregistered persons, the registered person is required to pay the tax on behalf of the unregistered supplier.

While this mechanism can have a significant impact on registered persons, it is important to ensure that all transactions are taxed and reported correctly. By doing so, businesses can avoid penalties and maintain compliance with the GST laws.

We hope that this article has provided clarity on the concept of Reverse Charge under GST, and how it works in the context of transactions between registered and unregistered persons.

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Updated on:
March 16, 2024