Reverse Charge Mechanism (RCM) under GST

Reverse Charge Mechanism (RCM) under GST

Goods and Services Tax (GST) is normally paid by the Supplier of Goods or Services or Both under the forward charge mechanism (FCM) basis. It means when a taxable person supplies a goods or services to another registered/ unregistered recipient, the supplier will collect GST from the buyer and will pay the same to the government as per the GST provisions.

However, there are some cases where GST is payable by the recipient of Goods or Services or both, which is called “Reverse Charge Mechanism”.

Where Reverse Charge will be applicable under GST?

There is a notified list of services by CBEC on which GST is to be paid on RCM basis by the recipient of Services.

Sr. No.	Services	Supplier of Services	Recipient of Services
1	GTA Services	Goods Transport Agency (GTA), who has not opted to pay tax @ 12% / 5% under forward charge mechanism.	Any taxable person located in taxable territory, who pays or liable to pay freight for the transportation of goods. GST Rate: - 5%
2	Services provide by way of renting of any motor vehicle.	Any person other than body corporate *Who supplies the services to body corporate and does not charge tax at the rate of 12%.	Anybody corporate located in taxable territory. GST Rate: - 5%
3	Import of Services	Any person located in Non-Taxable territory.	Any person located in Taxable territory. GST Rate: - 18%
4	Legal Services	Legal services by an individual advocate including senior advocate or by a firm of advocates.	Any business entity located in taxable territory. GST Rate: - 18%
5	Sponsorship services	Any person	Any Body corporate or partnership firm located in the taxable territory. GST Rate: - 18%
6	Services by arbitral tribunal	An arbitral tribunal	Any business entity located in taxable territory. GST Rate: - 18%
7	Security Services (by way of security personnel)	Any person other than body corporate	Registered person located in taxable territory. GST Rate: - 18%
8	Services supplied by director of company or body corporate.	Director of company or body corporate	Company or body corporate located in taxable territory. GST Rate: - 18%
9	Services by way of Renting of residential dwelling	Any Person	Any registered person located in taxable territory. GST Rate: - 18%   **If premises is taken on rent for residential purpose for his own personal use, then RCM will not be applicable.
10	Renting of immovable property	By the Central Government, State Government, Union territory or local authority	Any registered person located in taxable territory. GST Rate: - 18%
11	Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, – (1) renting of immovable property, and (2) services specified below-  (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority.  (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport.  (iii) transport of goods or passengers.	By the Central Government, State Government, Union territory or local authority	Any business entity located in taxable territory. GST Rate: - 18%   *These services are also exempt if the consideration does not exceed Rs. 5000 /-.
12	Services by Insurance Agent	Insurance Agent	Any person carrying on insurance business located in taxable territory. GST Rate: - 18%
13	Services by Recovery Agent	Recovery Agent	A Banking company or NBFC or financial institution located in taxable territory. GST Rate: - 18%
14	Services by way of transfer or permitting the use of a copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary, dramatic, musical, or artistic works.	Author, Music composer, Photographer, Artist, or the like	Publisher, Music company, Producer, or the like located in the taxable territory. GST Rate: - 12%
15	Services by the member of overseeing committee	Member of overseeing committee	Reserve Bank of India GST Rate: - 18%
16	Services provided by business facilitator.	Business facilitators	Banking company located in taxable territory. GST Rate: - 18%

 

Supply of goods where reverse charge will be applicable: -

a.       Where following goods are supplied by agriculturist to any registered person located in taxable territory, then the registered person receiving the goods will be liable to pay GST on RCM basis.

The list of Goods is as follows: -

1.       Cashew nut (Not shelled or peeled)

2.       Bidi wrapper leaves (tendu leaves)

3.       Tobacco leaves

4.       Silk yarn

5.       Raw cotton

b.       In case of supply of lottery by state government, union territory or local authority, then lottery distributor or selling agent will be liable to pay GST on RCM basis.

c.       In Case of used vehicles, confiscated or seized goods, old and used goods, waste and scrap supplied by the central or state government, union territory, or a local authority to any registered person, then recipient of such goods will be liable to pay GST on RCM basis.

Payment of Tax under Reverse Charge

The recipient of goods or services or both, who is liable to pay GST on reverse charge basis is required to pay tax by cash i.e., through Electronic Cash Ledger only in the form GSTR-3B. Hence, GST under reverse charge cannot be paid by utilizing the input tax credit available in Electronic Credit Ledger.

Reverse charge provisions applicable on advance payment also. So, in case if advance payment is made for any services on which RCM provisions are applicable, the tax liability will arise at the time of advance payment.

Input Tax Credit of Tax paid under Reverse Charge

Tax paid under reverse charge basis can be claimed as input tax credit in the same month of payment through form GSTR-3B. Only the condition is that the goods or services will be used for the furtherance of business. However, if tax is paid under RCM for the services taken by way of renting a motor vehicle, then limited ITC will be available.

 

Published By: - CA Puskar Singh and CA Rishabh Sipani

Disclaimer: The facts and opinions written in this article are truly based on the relevant provisions and information available at the time of preparation. The article does not constitute any professional advice or a formal recommendation. The author has undertaken the utmost care to disseminate true and correct views and does not accept liability of any errors or omissions.