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When does reverse charge vat apply...
All About Reverse Charge Mechanism (RCM) Under GST
The Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) framework shifts the responsibility of tax payment from the supplier to the recipient of goods or services.
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This approach ensures tax compliance, especially in sectors with unorganized suppliers or in cases involving imports.
What is Reverse Charge Mechanism?
Under typical circumstances, the supplier is liable to pay GST on the supply of goods or services.
However, under RCM, this liability is transferred to the recipient. This mechanism is designed to:
- Broaden the tax base by including unorganized sectors.
- Provide exemptions to specific supplier categories.
- Ensure taxation on the import of services, as foreign suppliers are beyond India's jurisdiction.
When is Reverse Charge Applicable?
RCM applicability is outlined in Sections 9(3), 9(4), and 9(5) of the Central GST (CGST) Act for intrastate transactions, and Sections 5(3), 5(4), and 5(5) of the Integrated GST (IGST) Act for interstate transactions.
The scenarios include: