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6) What is reverse charge mechanism in GST? Why was it brought into effect and discuss its impact?(250 words)

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Topic – Indian Economy – Issues

6) What is reverse charge mechanism in GST? Why was it brought into effect and discuss its impact?(250 words)

Financial express

Why this question

GST has recently celebrated its anniversary. As the tax regime gets implemented, certain key provisions of GST regime and their impact are being discussed. One of the key provision is reverse charge mechanism. The article discusses this topic.

Key demand of the question

The question expects us to explain what reverse charge mechanism is, the rationale behind this and assessment of the impact that it is having.

Directive word

Discuss – Here in your discussion, you have to debate the pros and cons of Reverse Charge mechanism.

Structure of the answer

Introduction – Explain what GST is and the revolution it has brought in indirect tax regime of India.

Body –

  • Explain what Reverse charge is – section 9(3) and 9(4) of CGST Act and section 5(3) and 5(4) of IGST Act specifies certain categories of supply and unregistered taxpayers respectively in whose case the burden of taxation falls on supplier of goods/service in place of recipient.
  • Explain why it was brought into force – ease of administration, protecting revenue, facilitating small businesses.
  • Examine its impact as discussed in the article and from other sources – the pros and cons

Conclusion – Mention how it can be improved to further benefit small businesses.