Reverse Charge Mechanism (RCM)

Generally, the supplier of Goods & services is responsible for collection and remittance of tax to the government. But there are certain transactions on which the GST has to be remitted by the purchaser of goods and services, this is well-known as GST on RCM.

When is RCM applicable?

1. A registered business owner receiving goods or services from an unregistered vendor
2. Services offered by an aggregator or e-commerce operator.
3. list of goods on which RCM is applicable
• list of goods on which RCM is applicable:
• Bidi wrapper leaves (tendu)
• Tobacco leaves
• Silk yarn
• Supply of lottery (Lottery distributor or Selling Agent)
• Used vehicles, seized and confiscated goods, old and used goods, waste and scrap
4. list of services on which RCM is applicable
• Services provided by a person in a non-taxable territory to a registered person in taxable territory
• Transport of goods by road
• Legal services
• Services provided by an arbitral tribunal
• Sponsorship services
• Services provided by government or local authority (excludes renting of immovable property, postal services, insurance and agency services, services provided to an aircraft or ship in an Indian air port or port and transport of goods/passengers)
• Services offered by a director or corporate body to their own company
• Services of an insurance agent
• Recovery agent services
• Transport of goods by a vessel from overseas to a customs office in India
• Transfer/Giving permission to copyrighted content (section 13(1) of copyright act 1957)
• Taxi services through an e-commerce operator

Time of Supply under RCM

In case of supply under RCM, the time of supply for goods shall be the earliest of the following dates:

1. Date of receipt of goods.
2. Date of payment
3. Date immediately after 30 days from the date of issue of an invoice by the supplier.

Input Tax Credit of GST paid on RCM

The service recipient can avail Input Tax credit on the Tax amount that is paid under RCM. The only condition is that the goods and services are used or will be used for business or furtherance of business.

ITC of GST paid by Composition dealers on RCM

If the composite dealer falls under reverse charge mechanism then the dealer is ineligible to claim any credit of tax paid. The tax will be paid at the normal applicable rates and not at the composition rates.

Learn more about Composition Scheme for Dealers

Points to be noted for GST under RCM?

1. The recipient of goods/services must be registered under GST.
2. Every registered business owner should maintain accurate records of supplies that would incur reverse charge.
3. Wherever reverse charge applies, the supplier must clearly mention on the invoice that the tax payable for that specific transaction is through reverse charge. Similarly, the same should be mentioned on receipt vouchers and refunds vouchers.
4. Advance paid on supplies that incur reverse charge is taxable under GST. The taxpayer making advance payment should pay tax on reverse charge basis.
5. As per Section 24 of CGST Act 2017, A person paying tax under the reverse charge mechanism has to compulsorily get registered even if the turnover is below the threshold limit.
6. GST Compensation Cess will be applicable on tax paid under reverse charge mechanism also.