Uncover the intricacies of Reverse Charge Mechanism (RCM) under GST law. From understanding the shift in tax liability to exploring specified categories of goods and services, delve into the comprehensive guide for smooth compliance.
Under this mechanism, the liability to pay tax in relation to supply of goods or services or both is on recipient instead of the supplier, which implies that the recipient pays to the supplier an amount exclusive of GST for the goods purchased or services availed.
The statutory liability to deposit GST & compliance requirements shifts from supplier to recipient.
There were 2 scenarios provided in law under this mechanism:
i. First is based on the supply of specified categories of goods or services
ii. Second is based on the supply of specified categories of goods or services made by an unregistered supplier to a specified class of registered recipients.
List of specified categories of goods or services notified under RCM:
| Notified Category of Goods | |||
| S. No. | Supply of Goods | Supplier of Goods | Recipient of Goods |
| 1. | Cashewnuts (not shelled/peeled) | Agriculturist | Registered Person |
| 2. | Bidi Wrapper leaves | Agriculturist | Registered Person |
| 3. | Tobacco leaves | Agriculturist | Registered Person |
| 4. | Raw Cotton | Agriculturist | Registered Person |
| 5. | Supply of Lottery | State Government, Union Territory, or any local authority | Lottery distributor or selling agent |
| 6. | Silk Yarn | Manufacturer of silk yarn | Registered Person |
| 7. |
|
Central Government, State Government, Union Territory, or any local authority | Registered Person |
| Notified Category of Services | |||
| S. No. | Supply of Services | Supplier of Goods | Recipient of Goods |
| 1. | Goods Transport Agency (GTA) in respect of transportation of goods by road | Goods Transport Agency (GTA) paid CGST @ 2.5% | a. Any factory
b. Any society c. Any Co-operative society d. Any Body Corporate e. Any Partnership firm including AOP f. Any Registered Person g. Any Casual taxable person (CTP) located in taxable territory. |
| 2. | Legal Services | Individual Advocates; including a senior advocate or firm of advocates | Any business entity located in the taxable territory |
| 3. | Arbitral Tribunal | An Arbitral Tribunal | Any business entity located in the taxable territory |
| 4. | Sponsorship | Any Person | Anybody corporate or partnership firm located in the taxable territory |
| 5. | All services Except below services:
1. Renting of Immovable property 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, Union territory, or local authority. ii. Services about an aircraft or a vessel, inside or outside the precincts of a port or an airport iii. Transport of goods or passengers. |
Central Government, State Government, Union territory, or local authority | Any business entity located in the taxable territory |
| 5A | Renting of Immovable property | Central Government, State Government, Union territory, or local authority | Any registered person |
| 5B | Transfer of Development rights (TDR) or Floor Space Index (FSI); including additional FSI for the construction of a project | Any person | Promoter |
| 5C | Long Term lease of land (30 yrs or more) against the consideration in the form of an upfront amount and/or periodic rent for construction of a project | Any person | Promoter |
| 6. | Director Service | A Director | Company or a body corporate located in the taxable territory |
| 7. | Insurance Service | An Insurance agent | Insurance business in the taxable territory |
| 8. | Recovery Agent services | Recovery Agent | A banking company or financial institution or a non-banking financial company located in a taxable territory |
| 9. | Services by music composer, photographer, artist or by way of transfer or permitting use or enjoyment of a copyright relating to original dramatic, musical, or artistic works | Music Composer, photographer, artist, or the like | The music company, producer |
| 9A | Transfer or permitting use or enjoyment of copyright relating to original literary works | Author | Publisher |
| However, an author has the option to pay tax under forward charge if he is registered under the Act and makes a declaration in the prescribed form and on an invoice issued by him. | |||
| 10. | Services by members of Overseeing Committee | Members of Overseeing Committee | RBI |
| 11 | Services of individual Direct Selling Agent (DSA) | Individual Direct Selling Agent (DSA) other than a body corporate, partnership, or LLP firm | A banking company or NBFC located in a taxable territory |
| 12 | Business facilitator services | Business facilitator | A banking company located in the taxable territory |
| 13 | Services by an agent of business correspondent | Agent of business correspondent | A business correspondent, located in taxable territory |
| 14 | Security Services (services by way of supply of security personnel) to a registered person.
Provided nothing in this entry shall apply to: i. a) Department or establishment of Central/ State Government or Union territory; b) Local authority; c) Governmental agencies which have taken registration only to deduct tax under section 51 of the Act & not for making a taxable supply of goods or services ii. Registered person paying tax under the composition scheme. |
Any Person other than a body corporate | A registered person located in the taxable territory |
| 15 | Renting of a motor vehicle designed to carry passengers where consideration includes the cost of fuel | Any person other than a body corporate who supplies the service to a body corporate & does not issue an invoice charging a central tax rate of 6% to the service recipient | Anybody corporate located in the taxable territory |
| 16 | The lending of securities under the Securities Lending Scheme,1997 of SEBI | Lender | Borrower |
In addition to the above services, 2 more services are notified under IGST Act vide NN 10/2017 IT (R) dated 28.06.2017
| 1. | Service supplied by any person located in a Non-Taxable Territory | Any person located in a Non-Taxable Territory | Any person located in a taxable territory other than a non-taxable online recipient |
| 2. | Services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India | A person located in a non-taxable territory | Importer, located in the taxable territory. |
Points to be noted:
- The Manner of Payment of Tax under RCM: The tax under reverse charge can be paid through cash only without availing ITC against the RCM tax amount.
- Compulsory Registration under GST Act: As per section 24 of CGST Act 2017, a person paying tax under RCM has to take registration compulsorily irrespective of the threshold limit.
- ITC on tax amount of reverse charge: The recipient can avail ITC on the paid tax amount under reverse charge on goods and services.
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About the Author :
The author is Ruchika Bhagat, FCA helping foreign companies in setting up and closing businesses in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat & Co. Chartered Accountants is a well-established Chartered Accountancy firm founded in the year 1997 with its head office in New Delhi.
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