The concept of Reverse Charge Mechanism (RCM) in India traces its origin back to the Service Tax regime, specifically in the context of import of services. Under the Service Tax law, where services were received from a person located outside India by a recipient in India, the service recipient was made liable to pay tax. This was the first formal recognition of RCM in Indian indirect taxation law.
Subsequently, the scope of RCM was expanded to cover domestic transactions as well. A major development came through Notification No. 30/2012–Service Tax, issued under Section 68(2) of the Finance Act, 1994. Effective from the financial year 2012, this notification brought into effect both partial and full reverse charge, wherein the recipient of services was liable to discharge service tax either wholly or in part. Common services under RCM during this era included manpower supply, works contracts, legal services, and services provided by directors.
With the introduction of the Goods and Services Tax (GST) on July 1, 2017, the RCM mechanism was retained and broadened under the new law. Statutory backing for RCM under GST is provided in:
- Sections 9(3) and 9(4) of the Central Goods and Services Tax (CGST) Act, 2017
- Sections 5(3) and 5(4) of the Integrated Goods and Services Tax (IGST) Act, 2017
The concept of partial reverse charge as seen in the Service Tax era was abolished. Under GST, if a supply falls under RCM, the entire tax liability is to be discharged by the recipient of goods or services.
What is RCM Under GST?
Under the normal GST regime (Forward Charge) , the supplier is responsible for collecting and depositing tax. Under Reverse Charge, this responsibility shifts to the recipient of goods or services. This mechanism ensures tax collection in scenarios where:
- The supplier is unregistered or not tax-compliant,
- The nature of service makes it difficult to monitor the supplier,
- The government seeks to prevent revenue leakage in high-risk sectors.
The government frequently updates the list of goods and services covered under RCM via notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).
RCM-Applicable Services in Day-to-Day Business
Below is a compiled list of services typically encountered in regular business operations where GST is payable under RCM, along with ITC eligibility:
| S. No. | Nature of Service | Supplier | GST Rate | ITC Availability |
|---|---|---|---|---|
| 1 | Services by Goods Transport Agency (GTA) | Goods Transport Agency | 5% | Available |
| 2 | Legal Services | Advocate / Firm of Advocates | 18% | Available |
| 3 | Import of Services | Foreign Service Provider | 18% | Available |
| 4 | Sponsorship Services | Any Person | 18% | Available |
| 5 | Renting of Residential Property | Unregistered Person | 18% | Available |
| 6 | Renting of Commercial Property | Unregistered Person | 18% | Available |
| 7 | Services by Director of a Company | Individual Director | 18% | Available |
| 8 | Security Services | Supplier other than Body Corporate | 18% | Available |
| 9 | Renting of Motor Vehicle (<13 seats) | Any Person | 5% | Not Available |
| 10 | Renting of Motor Vehicle (≥13 seats) | Any Person | 5% | Available |
| 11 | Lease Charges by Local Authority (e.g., Noida Authority) | Local Authority | 18% | Available |
| Notification No. | Date | Coverage Area |
|---|---|---|
| 13/2017 – CT (Rate) | 28.06.2017 | Issued under Section 9(3) of CGST Act; covers services like GTA, legal, director, sponsorship, etc. |
| 4/2017 – IT (Rate) | 28.06.2017 | Similar to above but under Section 5(3) of IGST Act – for interstate services. |
| 10/2017 – IT (Rate) | 28.06.2017 | Covers import of services – when the supplier is located in a non-taxable territory. |
| 4/2017 – IT (Rate) | 28.06.2017 | Originally issued under Section 9(4) for purchase from unregistered persons; now restricted to specific sectors like real estate. |
| 25/2024-Central Tax | 9th October, 2024 | Notifies RCM liability on purchase of metal scrap from unregistered dealers. |
Conclusion
The Reverse Charge Mechanism under GST is a powerful compliance tool that ensures tax is collected even in high-risk or unstructured sectors. While it adds some procedural responsibility on the recipient, it enables a cleaner input tax credit trail and increases overall tax transparency. Taxpayers should regularly review CBIC notifications and ensure timely compliance to avoid interest and penalties.
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1. Under GTA, Transporter is unregistered person issued Bill with address of Pune. Service Provided by the transporter at Chennai booking Office and material on Freight Paid basis to our customers and RCM Applicable to us, Kindly clarify “ we have to pay “ RCM Payable under IGST-5% for CGST (2.5%)& SGST (2.5%)“ , based on their Pune location / supply of service provided from Chennai.
In this case, please of supplies is Chennai and therefore, you have to pay RCM based on your GST registration location, not the GTA’s Pune/Chennai presence.
Same state (Recipient GSTIN = Place of supply) → CGST + SGST (2.5% + 2.5%)
Different state (Recipient GSTIN ≠ Place of supply) → IGST (5%)
1. Under GTA, Transporter is unregistered person issued Bill with address of Pune. Service Provided by the transporter at Chennai booking Office and material booked by us on Freight Paid basis for our customers. Here RCM Applicable to us, Kindly clarify “ we have to pay “ RCM Payable under IGST-5% for CGST (2.5%)& SGST (2.5%)“ , based on their Pune location / supply of service provided from Chennai.
good infmn.
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I am Director of Ganges NPA Recovery Agency, which provides services to banks in Recovery of NPAs.Vide GST notification GST on our bills are to be borne by the bank i.e.recipent of services.All bank are doing it under RCM.But SBI recover GST amount of our bills.What should be done.Pl advise.
Dear Sir, as Director of Ganges NPA Recovery Agency, your concern regarding GST wrongly recovered by SBI is valid and needs to be addressed carefully, keeping in view the applicable GST Notification and legal provisions.
Background of the Issue-
You mentioned that your agency provides NPA recovery services to banks, and as per applicable GST Notification, GST is payable by the recipient (bank) under Reverse Charge Mechanism (RCM).
Indeed, Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (as amended) lists “services provided by a recovery agent to a banking company or a financial institution” under RCM. Hence, banks are liable to pay GST under RCM on such services, and you (the service provider) should not charge GST on your invoice.
Issue: SBI Deducting GST from Your Bill
If State Bank of India (SBI) is deducting GST from your bill amount instead of paying it under RCM, they are wrongly shifting the tax burden to you, which is contrary to law. This:
-Reduces your payment unjustly
-Increases your effective tax burden
-Is not compliant with GST rules
What You Should Do: Recommended Action Plan
1. Communicate Formally with SBI
Write an official letter/email to the concerned branch/officials of SBI, citing the GST Notification, and clarify that:
-GST on your services is payable by SBI under RCM
-You are not supposed to charge GST in your invoice
-Deducting GST from your bill is against GST law
Enclose the following formal communication:
-Copy of Notification No. 13/2017–Central Tax (Rate), Entry No. 12
-Sample invoices you have raised on other Banks showing no GST charged
-Payment advice showing GST deducted by SBI
2. Request Reimbursement or Correction
Ask SBI to:
-Reimburse the wrongly deducted GST amount, or
-Stop deducting GST in future payments, and pay the full invoice amount
3. Raise the Issue with Higher Authorities or Nodal Officer
-If the branch does not respond:
-Escalate to SBI Zonal/Regional Office
-Write to Nodal Officer for Vendor Payments or Compliance Department
You can also choose to file a written representation to your jurisdictional GST officer, highlighting the misapplication of RCM by the bank
Though not a litigation matter, it can strengthen your position if any departmental audit happens
Sample Email/Letter Format to SBI
Subject: Deduction of GST from NPA Recovery Service Bills – Clarification under RCM
Respected Sir/Madam,
We are registered as a Recovery Agent under the name Ganges NPA Recovery Agency, providing NPA recovery services to SBI and other banks. As per Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (as amended), GST on our services is liable to be paid by the recipient (i.e., the Bank) under Reverse Charge Mechanism.
However, we noticed that GST amount is being wrongly deducted from our billed amount, thereby reducing our receivable unfairly. Kindly note that as per the law, we are not required to charge GST in our invoice, and the full invoice value should be paid to us, with SBI discharging the GST liability under RCM.
We request you to kindly:
-Stop deducting GST from our invoices, and
-Reimburse the amounts already deducted, if possible.
-Copy of relevant GST Notification is enclosed for your ready reference.
We look forward to your kind cooperation in resolving this matter.
Sincerely,
[Your Full Name]
Director, Ganges NPA Recovery Agency
[Email / Mobile No.]