Reverse Charge Mechanism (RCM) under Goods and Services Tax (GST) laws: A comprehensive overview

Sec 2 (98) of the Central Goods and Services Tax Act, 2017 (CGST Act) defines reverse charge as liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 (IGST Act). Sub-section (3) or sub-section (4) of section 9, are parallel to sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act, therefore reference to section 9 of CGST Act would also mean section of IGST Act.

Section 9 of the CGST Act deals with levy and collection of tax under this Act. Under this section, there are two types of reverse charge scenario. Firstly, sub-section 3 notifies certain supplies of goods and services, the tax on which is payable by the recipient of supply. Secondly, sub-section 4 envisages tax to be paid by the recipient on reverse charge basis upon receipt of supply from any unregistered person.

RCM under section 9 (3) of the CGST Act

CBIC has from time to time notified various goods and services, the tax on which is payable by the recipient of supply of goods or services. The updated list of goods and services along with rates of taxes is provided herewith for the reference.

Updated list of services upon which tax is applicable on reverse charge basis:

Entry No. Category of supply of service Supplier of service Recipient of service Tax rate with SAC Remarks
CGST: NA

IGST:1

Any service provided by any person located in non-taxable territory to any person other than non-taxable online recipient Any person located in non-taxable territory Any person located in the taxable territory other than non-taxable online recipient Depends upon the nature of service

(SAC: NA)

Only IGST may be charged on such transactions.
Note: Where any person located in taxable territory (say India) receives any service from outside India, the tax (IGST) shall be paid on such service under reverse charge at applicable rates as prevalent on that service.
CGST:1

IGST:2

Supply of services by Goods Transport Agency (GTA) for transportation of goods by road to any –

• factory

• society

• co-operative society

• person registered under GST laws

• body corporate

• partnership firm

• casual taxable person

Goods Transport Agency (GTA)

[GTA provides consignment note and take responsibility of the goods in case of damage/loss]

Any –

• factory

• society

• co-operative society

• person registered under GST laws

• body corporate

• partnership firm

• casual taxable person located in taxable territory

5% / Exempt

(SAC:9965)

Recipient must be careful in determining the status of GTA to any transporter. Any transporter not assuming responsibility for loss of goods may not be termed as GTA.
Note: Where the goods are transported by road by a non-GTA transporter, then such services are exempt vide notification 12/2017 – Central Tax (Rate) dated 28th June, 2017. Further, transportation of following goods provided by GTA for transportation by road are exempt –

• agricultural produce

• where freight charged by the GTA does not exceed Rs. 1,500/- for a single carriage

• where freight charged by the GTA does not exceed Rs. 750/- for a single consignee

• milk, salt and food grain including flour, pulses and rice

• organic manure

• newspaper or magazines registered with Registrar of Newspaper

• relief materials for any natural or man-made disaster

• defence or military equipments

• services provided to unregistered person including unregistered casual taxable person

• services provided to Government agencies who have taken registration only for deduction of TDS u/s 51.

CGST:2

IGST:3

Services provided by an individual advocate including senior advocate or firm of advocates by way of legal services, directly or indirectly An individual advocate including senior advocate or firm of advocates Any business entity located in the taxable territory 18% / Exempt

(SAC:9982)

Legal service means any service provided in relation to advice, consultancy or assistance in any branch of law in any manner.

Note: Services provided by the advocates or firm of advocates is exempt in certain cases vide notification 12/2017 – Central Tax (Rate) dated 28th June, 2017-

• when legal services are provided to an advocate or firm of advocates providing legal services (not for senior advocates)

• when legal services are provided to any person other than body corporate

• when legal services are provided to a business entity having turnover less than Rs. 20 lakhs (Rs. 10 lakhs in special category states) in the preceding financial year

• when legal services are provided to Central Government, State Government, Union territory, local authority, Governmental authority or Government Entity.

However, where senior advocates provide legal services to other advocates or firm of advocates, the services are not exempt and taxable @ 18%.

CGST:3

IGST:4

Services supplied by an arbitral tribunal to a business entity. An arbitral tribunal Any business entity located in the taxable territory. 18% / Exempt

(SAC:9982)

As per clause (d) of Section 2 of Arbitration and Conciliation Act, 1996, “arbitral tribunal” means a sole arbitrator or a panel of arbitrators.
Note: Services provided by an arbitral tribunal is exempt in certain cases vide notification 12/2017 – Central Tax (Rate) dated 28th June, 2017-

• when services are provided to any person other than body corporate

• when services are provided to a business entity having turnover less than Rs. 20 lakhs (Rs. 10 lakhs in special category states) in the preceding financial year

• when services are provided to Central Government, State Government, Union territory, local authority, Governmental authority or Government Entity.

CGST:4

IGST:5

Sponsorship service provided to any body corporate or partnership firm Any person Any body corporate or partnership firm located in the taxable territory 18%

(SAC:9983)

Note: Sponsorship service provided to any individual is covered under forward charge and the service provider has to charge GST accordingly.
CGST:5

IGST:6

Services supplied by the Central or State Government or local authority to a business entity, except –

• renting of immovable property

• speed post, express parcel post, life insurance and agency services to a person by Department of Post

• aircraft or vessel services

• transport of goods or passengers

Central Government, State Government, Union territory or local authority Any business entity located in the taxable territory. 18% / Exempt

(SAC: 9991)

Note: Notification 12/2017 dated 28th June, 2017 exempts following services provided by the Government –

• services entrusted to municipality under article 243W or 243G of the Constitution

• services provided to general public

• services provided to business entity with an aggregate turnover of upto Rs. 20 lakhs (Rs. 10 lakhs in special category states)

• services provided to another Central or State Government, or Union territory or local authority.

• Services for which consideration does not exceed Rs. 5,000/- in a financial year.

No exemption shall apply to following services provided to any person by the Government-

• speed post, express parcel post, life insurance and agency services to a person by Department of Post

• aircraft or vessel services

• transport of goods or passengers

• renting of immovable property

CGST:5A

IGST:6A

Services supplied by the Central or State Government or local authority by way of renting of immovable property to a person registered under GST laws. Central Government, State Government, Union territory or local authority Any person registered under GST laws. 18% / Exempt

(SAC: 9972)

W.e.f. 25.01.2018
Note: Following renting services are exempt from levy of GST vide notification 12/2017 – Central Tax (Rate) dated 28th June, 2017

• renting of residential dwelling for use as residence.

• renting for conduct of any religious ceremony

• renting of precincts of a religious place for general public (except rent of room exceeds Rs. 1,000/- per day or renting of premises/shops or other spaces exceeds Rs. 10,000/- per day)

CGST:5B

IGST:6B

Services supplied by any person by way of transfer of development rights (TDR) or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter. Any person Promoter 18% / Exempt

(SAC: 9972)

W.e.f. 01.04.2019
Note: Vide notification 04/2019 – Central Tax (Rate) dated 29th March, 2019, service by way of transfer of development rights (TDR) or Floor Space Index (FSI) (including additional FSI) on or after 1st April, 2019 for construction of residential apartments by a promoter in a project, intended for sale to a buyer are exempt except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

The amount of GST exemption shall be limited to: GST payable on TDR or FSI (including additional FSI) for entire project x carpet area of the residential apartment in the project / total carpet area of the residential and commercial apartments in the project.

However, tax on reverse charge shall be payable by the promoter on unbooked flats on the date of issuance of completion certificate or after its first occupation, as the case may be, in the following manner: GST payable on TDR or FSI (including additional FSI) for residential apartments in the project (had the exemption has not been there) x carpet area of unbooked residential apartment / total area of the residential apartment in the project.

Tax payable shall be limited to 1% (0.5% + 0.5%) of value in case of affordable residential apartment and 5% (2.5% + 2.5%) other than affordable residential apartment remaining unbooked.

CGST:5C

IGST:6C

Long term lease of land by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter. Any person Promoter 18% / Exempt

(SAC: 9972)

Long term lease of land means lease for 30 years or more.

W.e.f. 01.04.2019

Note: Vide notification 04/2019 – Central Tax (Rate) dated 29th March, 2019, upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years or more, on or after 1st April, 2019 for construction of residential apartments by a promoter in a project, intended for sale to a buyer are exempt except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

The amount of GST exemption shall be limited to: GST payable on upfront amount payable for long term lease of land for entire project x carpet area of the residential apartment in the project / total carpet area of the residential and commercial apartments in the project.

However, tax on reverse charge shall be payable by the promoter on unbooked flats on the date of issuance of completion certificate or after its first occupation, as the case may be, in the following manner: GST payable on upfront amount payable for long term lease of land for residential apartments in the project (had the exemption has not been there) x carpet area of unbooked residential apartment / total area of the residential apartment in the project.

Tax payable shall be limited to 1% (0.5% + 0.5%) of value in case of affordable residential apartment and 5% (2.5% + 2.5%) other than affordable residential apartment remaining unbooked.

CGST:6

IGST:7

Services supplied by a director of a company or a body corporate to the said company or body corporate A director of a company or a body corporate A company or a body corporate located in the taxable territory. 18%

(SAC: Depends upon nature of service supplied)

Note: Any amount paid by the Company to its directors, apart from in the nature of salary, shall be taxable and tax shall be paid by the Company on reverse charge basis. For instance, GST shall be charged on reverse charge basis on the following transactions:

• Director sitting fees

• Director’s remuneration to non-executive directors

• Any amount paid to the director in capacity of a director of the Company

CGST:7

IGST:8

Services provided by an insurance agent to any person carrying on the business of insurance An insurance agent Any person carrying on the business of insurance located in the taxable territory. 18%

(SAC: 9971)

CGST:8

IGST:9

Services provided by recovery agent to a banking company or a financial institution or NBFCs A recovery agent A banking company or a financial institution or NBFCs located in the taxable territory. 18%

(SAC: 9971)

CGST:NA

IGST:10

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 non-taxable territory Importer located in the taxable territory 5% Only IGST may be charged on such transactions.
Note: Any importer importing goods on FOB basis has to bear the cost of transportation and therefore is liable to pay the ocean freight of the vessel (in case the goods are imported via sea route). In such cases, where the freight is borne by the importer, he is liable to pay tax (IGST) on such sea freight @ 5% on reverse charge basis.
CGST:9

IGST:11

Supply of services by a music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright relating to original dramatic, musical or artistic works to a music company, producer or the like. Music composer, photographer, artist or the like A music company, producer or the like located in the taxable territory 18%

(SAC: 9996)

CGST:9A

IGST:11A

Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright relating to original literary works to a publisher. Author Publisher located in the taxable territory. 18%

(SAC: 9996)

The author has the option to opt for forward charge.

W.e.f. 01.10.2019

Note: Vide notification 22/2019 – Central Tax (Rate) dated 30th September, 2019, option was provided to the author to opt for forward charge. For opting for forward charge, the author is required to take registration under CGST Act and file a declaration, in the notified form within 31st October, 2019 or before commencement of any financial year, with the jurisdictional CGST or SGST Commissioner that he exercises the option to pay taxes under forward charge in accordance with Section 9 (1) of CGST Act and to comply with all the provisions of CGST Act as they apply to a person liable for paying the tax in relation to the supply of any goods or services or both and that he shall not withdraw the said option within a period of 1 year from the date of exercising such option. Further, the author shall make the prescribed declaration on the invoices issued by him in Form GST Inv-I to the publisher.
CGST:10

IGST:12

Supply of services by the members of Overseeing Committee to Reserve Bank of India Members of Overseeing Committee constituted by Reserve Bank of India Reserve Bank of India 18%

(SAC: 9971)

W.e.f. 13.10.2017
CGST:11

IGST:13

Services provided by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or LLP to bank or NBFCs Individual DSAs Bank or NBFCs located in the taxable territory 18%

(SAC: 9971)

W.e.f. 27.07.2018
CGST:12

IGST:14

Services provided by business facilitators to a banking company Business Facilitators A banking company located in the taxable territory 18% / Exempt

(SAC: 9971)

W.e.f. 01.01.2019
Note: Vide notification 12/2017 – Central Tax (Rate) dated 28th June, 2017 following services are exempt –

• business facilitator to the banking company with respect to accounts in its rural branches

CGST:13

IGST:15

Services provided by an agent of business correspondent (BC) to business correspondent An agent of business correspondent A business correspondent located in the taxable territory 18% / Exempt

(SAC: 9971)

W.e.f. 01.01.2019
Note: Vide notification 12/2017 – Central Tax (Rate) dated 28th June, 2017 following services are exempt –

• any person as an intermediary to a business facilitator or a business correspondent with respect to accounts of the bank in its rural branches

CGST:14

IGST:16

Security services or supply of security personnel provided to a registered person Any person other than a body corporate A registered person located in the taxable territory 18%

(SAC: 9985)

W.e.f. 01.01.2019
Note: Any body corporate providing security services or providing security personnel shall continue to charge GST on forward charge basis only.
CGST:15

IGST:17

Services provided by way of renting of a motor vehicle provided to a body corporate. Any person other than a body corporate, paying central tax at the rate of 2.5% on renting of motor vehicles of ITC only in input service in the same line of business Any body corporate located in the taxable territory. 5% / 18% (depending upon who is bearing the cost of fuel)

(SAC: 9966)

It is immaterial whether the renting of motor vehicle is with or without operator / driver.

W.e.f. 01.10.2019

Note: The renter would charge 5% or 12% tax on supply to non-corporate customers on forward charge basis (Like Ola or Uber charges 5% on the fare amount). However, upon supply to body corporates, tax shall be paid by body corporates on reverse charge basis at 5%, if the cost of fuel is borne by the renter or 18%, if cost of fuel is borne by the body corporate.
CGST:16

IGST:18

Services by lending of securities under Securities Lending Scheme, 1997 of SEBI, as amended. Lender i.e. a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under the Scheme of SEBI Borrower i.e. a person who borrows the securities under the Scheme through an approved intermediary of SEBI. 18%

(SAC: 9971)

W.e.f. 01.10.2019
Note: Securities Lending Scheme, 1997, is a scheme for lending of securities through an approved intermediary to a borrower under an agreement for a specified period with the condition that the borrower will return equivalent securities of the same type or class at the end of the specified period along with the corporate benefits accruing on the securities borrowed.
List of all CGST notifications:

13/2017 – Central Tax (Rate) dated 28th June, 2017; 22/2017 – Central Tax (Rate) dated 22nd August, 2017; 33/2017 – Central Tax (Rate) dated 13th October, 2017; 03/2018 – Central Tax (Rate) dated 25th January, 2018; 15/2018 – Central Tax (Rate) dated 26th July, 2018; 29/2018 – Central Tax (Rate) dated 31st December, 2018; 05/2019 – Central Tax (Rate) dated 29th March, 2019 and 22/2019 – Central Tax (Rate) dated 30th September, 2019

Updated list of goods upon which tax is applicable on reverse charge basis:

Entry No. HSN Code Description of goods Supplier of goods Recipient of supply Rate Note
1 0801 Cashew nut, not shelled or peeled Agriculturist Any registered person 5%
2 1404 90 10 Beedi wrapper leaves (tendu) Agriculturist Any registered person 18%
3 2401 Tobacco leaves Agriculturist Any registered person 5%
4 5004 to 5006 Silk yarn Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn Any registered person 5%
4A 5201 Raw cotton Agriculturist Any registered person 5% W.e.f. 15.11.2017
5 Supply of lottery State Government, Union territory or any local authority Lottery distributor or selling agent 12% / 28%
6 Any Chapter Used vehicles, seized and confiscated goods, old and used goods, waste and scrap Central Government, State Government, Union territory or any local authority Any registered person Depends upon the nature of supply W.e.f. 13.10.2017
7 Any Chapter Priority Sector Lending Certificate Any registered person Any registered person Depends upon the nature of supply W.e.f. 28.05.2018
List of all CGST notifications:

04/2017 – Central Tax (Rate) dated 28th June, 2017; 36/2017 – Central Tax (Rate) dated 13th October, 2017; 43/2017 – Central Tax (Rate) dated 14th November, 2017 and 11/2018 – Central Tax (Rate) dated 28th May, 2018

RCM under section 9 (4) of the CGST Act

Section 9 (4) requires any recipient to pay tax on reverse charge basis upon receipt of supply from any unregistered person. This section was applicable till 13th October, 2017, if the aggregate value of inward supplies from one or all the unregistered supplier exceeded Rs. 5,000/- per day. Thereafter, the application of this section was deferred till 31st March, 2018 which was further deferred to 30th June, 2018 then to 30th September, 2018 and then to 30th September, 2019.

In the meantime, section 9 (4) of the CGST Act was amended vide CGST (Amendment) Act, 2018 [31 of 2018] with effect from 1st February, 2019 which stated that the Government, by notification, shall specify the class of registered person who shall pay tax on reverse charge basis upon receipt of supplies of specified categories of goods or services or both from unregistered suppliers.

Thereafter, vide notification 01/2019 – Central Tax (Rate) dated 29th January, 2019, all earlier exemption notifications were rescinded with effect from 1st February, 2019, as they were no longer relevant.

On 29th March, 2019 vide notification 07/2019 – Central Tax (Rate), the Government specified the following class of registered person who shall pay tax on reverse charge basis upon receipt of supplies of specified categories of goods or services or both from unregistered suppliers.

Sl No Category of supply of goods or services Recipient of goods or services Rate of tax
1 Where the promoter procures less than 80% of the goods or services or both from the registered person (in a financial year or part thereof) – the value of such shortfall on procurement of goods or services or both Promoter 18%
2 Cement under chapter heading 2523 procured from unregistered person Promoter 28%
3 Capital goods supplied to a promoter for construction of a project on which tax is payable or paid at 1% or 5% (new rates w.e.f. 01.04.2019) Promoter Depends upon the nature of supply
List of all CGST notifications:

 

08/2017 – Central Tax (Rate) dated 28th June, 2017; 38/2017 – Central Tax (Rate) dated 13th October, 2017; 10/2018 – Central Tax (Rate) dated 23rd March, 2018; 12/2018 – Central Tax (Rate) dated 29th June, 2018; 22/2018 – Central Tax (Rate) dated 6th August, 2018; 01/2019 – Central Tax (Rate) dated 29th January, 2019 and 07/2019 – Central Tax (Rate) dated 29th March, 2019

This article covers the amendments and notifications till 30th September, 2019.

Disclaimer: This update provided by D J A S & Co., Chartered Accountants, is not intended to be a form of solicitation or advertising. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate thereafter. No person should act on such information without appropriate professional advice based on the circumstances of a particular situation. This update is intended for knowledge sharing only.

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One Comment

  1. Mrudul says:

    Sir, your article on reverse charge is very useful. One small query on the same. From 01.10.2019, if an individual / Proprietory firm or a partnership firm is providing a private taxi on hire either on monthly basis or for a one time trip (other than Meru / Ola etc.) to a body corporate, the body corporate is required to pay GST on it under reverse charge. Is it correct? If yes, 1) can the body corporate claim ITC of the GST paid under reverse charge? 2) what is the rate of GST to be paid under reverse charge?

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