Library / Goods and Services Tax: The Professional's Master Guide

7. Levy, Exemptions and Reverse Charge (Sections 9 and 11; IGST Section 5)

Section 9 of the CGST Act and section 5 of the IGST Act are the charging sections. They create the levy, fix the maximum rates, and decide who pays: normally the supplier, but in notified cases the recipient or an e-commerce operator. Section 11 gives the power to exempt. Together they answer the question "who pays how much tax on this supply".

7.1 The charge

Section 9(1) levies CGST on all intra-State supplies of goods or services, except alcoholic liquor for human consumption, on the value determined under section 15, at the rates notified on the Council's recommendation, not exceeding 20%. The SGST Acts levy the same amount of State tax. Section 5(1) of the IGST Act levies IGST on inter-State supplies at rates not exceeding 40%; IGST on imported goods is levied under the Customs Tariff Act at the point of import. Section 9(2) provides that the five petroleum products will be taxed from a date to be notified. Tax is payable by the supplier (forward charge) unless one of the following applies:

• section 9(3): notified categories of supply where the recipient pays (reverse charge);
• section 9(4): notified classes of registered persons pay on specified supplies received from unregistered suppliers;
• section 9(5): notified services supplied through an e-commerce operator, where the operator pays.

7.2 Reverse charge on notified services (section 9(3))

Reverse charge is used where the supplier is small, unorganised or outside India, or where collecting from the recipient is simpler. The main entries in the services notification (Notification 13/2017-Central Tax (Rate), as amended) are listed below. The recipient pays at the rate that applies to the service.

For renting of motor vehicles, the entry was restructured after GST 2.0; confirm the current wording before advising, particularly where the supplier charges 18% with ITC under forward charge. Transfer of copyright by authors, music composers and artists, services of mutual fund agents, business facilitators and lottery selling agents are also under reverse charge.

Director's remuneration that is treated as salary under the Income-tax law is outside GST as an employee service. Sitting fees and commission to independent directors are taxable under reverse charge (Circular 140/10/2020).

7.3 Reverse charge on notified goods

The goods notification (Notification 4/2017-Central Tax (Rate), as amended) covers: cashew nuts not shelled or peeled, bidi wrapper leaves (tendu) and tobacco leaves supplied by an agriculturist; silk yarn by a manufacturer; raw cotton by an agriculturist; supply of lottery by a State Government, UT or local authority to a lottery distributor; used vehicles, seized and confiscated goods, old and used goods, and waste and scrap sold by Government or a local authority; priority sector lending certificates; and, from 10 October 2024, metal scrap falling in Chapters 72 to 81 supplied by an unregistered person to a registered person.

7.4 Procedure under reverse charge

• Registration: a person liable to pay tax under reverse charge must register regardless of turnover (section 24(iii)).
• Self-invoice: where the supplier is unregistered, the recipient issues an invoice itself (section 31(3)(f)) within 30 days of receipt of the supply (rule 47A), and a payment voucher at the time of payment (section 31(3)(g)).
• Payment in cash: tax under reverse charge is not "output tax" (section 2(82)), so it cannot be paid from the credit ledger. It must be paid through the cash ledger.
• ITC: tax paid under reverse charge is input tax. The recipient can take ITC in the same return if the supply is used for business and not blocked under section 17(5). For supplies from unregistered persons, the time limit under section 16(4) is linked to the financial year of the self-invoice.
• Time of supply: for goods, the earliest of receipt of goods, date of payment, and the date immediately after 30 days from the supplier's invoice (section 12(3)); for services, the earlier of date of payment and the date immediately after 60 days from the supplier's invoice (section 13(3)). For import of services from an associated enterprise, the date of entry in the books or of payment, whichever is earlier.

The company pays Rs. 2,03,400 (CGST Rs. 1,01,700 and SGST Rs. 1,01,700) in cash with its GSTR-3B and takes ITC of the same amount in that return, since all the supplies are used for its taxable business. The cash outflow is recovered only when the ITC is used against output tax in later months. Self-invoices are needed for the rent and the scrap, as those suppliers are unregistered.

7.5 Section 9(4): promoters of real estate projects

Section 9(4) now applies only to notified classes of registered persons. The main case is promoters of residential real estate projects paying the concessional rates of 1% and 5% without ITC. They must buy at least 80% of their inputs and input services (other than land development rights, FSI, electricity, diesel, petrol and natural gas) from registered suppliers. On any shortfall, the promoter pays tax at 18% under reverse charge. Cement and capital goods bought from unregistered suppliers are taxed under reverse charge at their applicable rates.

7.6 Section 9(5): e-commerce operators

For notified services supplied through an e-commerce operator, the operator is liable to pay tax as if it were the supplier: passenger transport by radio taxi, motor cab, maxi cab, motorcycle or omnibus; hotel accommodation and similar services (except where the supplier is registered and liable in its own right); housekeeping services; restaurant services (from 1 January 2022); and local delivery services where the supplier is unregistered (from 22 September 2025, at 18%). If the operator has no physical presence in India, its representative pays.

7.7 Exemptions (section 11)

Section 11(1) allows the Government, on the Council's recommendation, to exempt goods or services generally, either absolutely or subject to conditions, by notification. Section 11(2) allows exemption by a special order in exceptional cases. The main exemption notifications are Notification 10/2025-Central Tax (Rate) for goods (which replaced Notification 2/2017-Central Tax (Rate) from 22 September 2025) and Notification 12/2017-Central Tax (Rate), as amended, for services. Key service exemptions include:

• health care services by a clinical establishment, an authorised medical practitioner or para-medics;
• services by an educational institution to its students, faculty and staff, and specified services to such institutions up to higher secondary level;
• agricultural services such as cultivation, supply of farm labour, and storage and warehousing of agricultural produce;
• charitable activities by entities registered under the Income-tax law for charitable purposes;
• renting of residential dwelling for use as residence, other than to a registered person;
• many services by Government and local authorities, subject to exceptions;
• interest on deposits, loans and advances (other than credit card interest);
• services by the Reserve Bank of India;
• individual life insurance and individual health insurance policies, and their reinsurance, from 22 September 2025.

Where an exemption is granted absolutely (without conditions), the supplier cannot collect tax on the supply (Explanation to section 11). Where an exemption is conditional, the supplier who does not meet the conditions simply pays tax. In both cases, ITC on inputs and input services used for exempt supplies is not available (section 17(2)), and common credit must be reversed under rules 42 and 43. A business with even a small exempt stream must therefore run the reversal every month and true it up at the year end.

7.8 Section 11A: tax not recovered because of general practice

Section 11A, inserted in 2024, allows the Government, on the Council's recommendation, to direct that GST not levied or short levied because of a general practice in the trade will not be recovered for a specified period. It is meant for cases where the whole industry followed an interpretation that later turned out to be wrong. It is a power to forgive, not a right the taxpayer can claim; relief depends on a specific notification.

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