Normally, the supplier of goods or services pays the tax on supply. In the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.
When is Reverse Charge Applicable?
A. Supply from an unregistered dealer to a registered dealer
If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier. The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made. For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the purchaser.
B. Services through an e-commerce operator
If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST. For example, Urban Clap provides services of plumbers, electricians, teachers, beauticians etc. Urban Clap is liable to pay GST and collect it from the customers instead of the registered service providers. If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.
C. Supply of certain goods and services specified by CBEC
CBEC has issued a list of goods and a list of services on which reverse charge is applicable.