Reverse Charge Mechanism in Service Tax

Reverse Charge Mechanism in Service tax is a mechanism in which the recipient of goods and services is liable to pay the tax to the government in place of the service provider. Generally, the tax is paid by the service provider only. But in this mechanism, the recipient replaces the provider and is accountable for the chargeability.

Applicability of Reverse mechanism

The reverse charge mechanism in service tax is applicable to the following aspects:

  • Registered dealer receiving goods from an unregistered dealer.
  • E-commerce operator providing services.
  • Supply of good and services stated by CBEC (Central Board of Excise and Customs).

An invoice shall be issued by the service provider including the part of the service tax to be paid by him if the reverse mechanism is applied.

Small-scale service provider – Reverse Charge under Service Tax

Service providers with a turnover of Rs.10 lakh or less are not liable to pay service tax to the government. However, the recipient of the service is accountable to pay the service tax according to the partial reverse mechanism.

Services –Service Tax Reverse Charge 

Services covered under the reverse charge are given below:

  • Insurance Agents
  • Good Transport Agency

– The individual liable to pay the tax on transportation of goods in the taxable territory is considered as the recipient of the service and thus has to pay service tax.

  • Sponsorship
  • Arbitral Tribunal
  • Support services from the Government or Local authorities
  • Carrying passengers on hired motor cycle on abated value
  • Individual advocate
  • Supply of security services and manpower
  • Work contract

– The service provider and recipient are liable to pay the tax. The recipient can independently choose the method of valuation which can be different from the method chose by the service provider.

  • Service import
  • Director to Company services
  • Recovery agent
  • Mutual fund
  • Lottery service
  • Aggregator services

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