Reverse Charge Mechanism (RCM) in Goods and Services Tax (GST)
The concept of Reverse Charge Mechanism in Good and Services Tax has the same concept as it was in erstwhile Services Tax Act, except some changes are like Applicability on different tax payers, Compliance and its applicablity on some of the Goods as notified by the Government.
The below note will update you about the concept of Reverse Charge Mechanism and its applicability on Goods and Services till the date of writing this letter.
Defination of Reverse Charge as per CGST Act 2017:
As per section 2(98) “reverse charge” means the 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 of CGST Act 2017, or under sub-section (3) or subsection (4) of section 5 of the IGST Act;
So, In RCM the recipient has to pay the tax instead of Supplier and recepient can take credit of the RCM paid as ITC.
The aim of Government behind this is to keep track and control of unorganized sectors.
The Charging Sections are 9(3) and 9(4) of CGST and 5(3)& 5(4) of IGST are reproduced as below:
Section 9(3) & 5(3) ; The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Section 9(4) & 5(4) ; The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Every Registered Tax payer has to comply with the provision of reverse charge mechanism irrespective of the Turnover threshold limit, Scheme of Registration whether Composition or registered as per section 24 of CGST act 2017.
Below is the list of Goods and Services on which GST on RCM shall be applicable as per the Notifications issued by CBIC
|Notification Serial No.||Tariff item, sub-heading, heading or Chapter||Description of supply of Goods/ Services||Supplier of goods/ Services||Recipient of supply||Type Goods/ Services|
|1||801||Cashew nuts, not shelled or peeled||Agriculturist||Any registered person||Goods|
|2||1404 90 10||Bidi wrapper leaves (tendu)||Agriculturist||Any registered person||Goods|
|3||2401||Tobacco leaves||Agriculturist||Any registered person||Goods|
|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||Goods|
|5||–||Supply of lottery||State Government, Union Territory or any local authority||Lottery distributor or selling agent,Explanation.- For the purposes of this entry, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the provisions of sub section 1 of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998).||Goods|
|6||Any Chapter||Used vehicles, seized and confiscated goods, old and used goods, waste and scrap||Central Government, State Government, Union territory or a local authority||Any registered person||Goods|
|4A||5201||Raw cotton||Agriculturist||Any registered person||Goods|
|7||Any Chapter||Priority Sector Lending Certificate||Any registered person||Any registered person||Goods|
|1||–||Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road
“, who has not paid central tax at the rate of 6%,” (Inserted vide notfctn no. 22/2017, Central tax Rate dated: 22/08/2017) Inserted vide notfctn no. 29/2018, dated 31.12.2018 as below:
“Provided that nothing contained in this entry shall apply to services provided by a goods transport agency, by way of transport of goods in a goods carriage by road, to, –
(a) a Department or Establishment of the Central Government or State
Government or Union territory; or
(b) local authority; or
(c) Governmental agencies,
which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services
|Goods Transport Agency (GTA)||(a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or||Services|
|(b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or||Services|
|(c) any co-operative society established by or under any law; or||Services|
|(d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or||Services|
|(e) any body corporate established, by or under any law; or||Services|
|(f) any partnership firm whether registered or not under any law including association of persons; or||Services|
|(g) any casual taxable person||Services|
|located in the taxable territory.|
|2||–||Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity. Substituted vide Corrigendum to Notfct no. 13/2017, “Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly.||An individual advocate including a senior advocate or firm of advocates.||Any business entity located in the taxable territory.||Services|
|3||–||Services supplied by an arbitral tribunal to a business entity.||An arbitral tribunal.||Any business entity located in the taxable territory.||Services|
|4||–||Services provided by way of sponsorship to any body corporate or partnership firm.||Any person||Any body corporate or partnership firm located in the taxable territory.||Services|
|5||–||Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, –||Central Government, State Government, Union territory or local authority||Any business entity located in the taxable territory.||Services|
|(1) renting of immovable property, and||Services|
|(2) services specified below-||Services|
|(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;||Services|
|(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;||Services|
|(iii) transport of goods or passengers.||Services|
|5A||–||Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12
Union territory or
|Any person registered under the Central Goods and Services Tax Act, 2017||Services|
|5B||–||Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter.||Any person||Promoter||Services|
|5C||–||Long term lease of land (30 years or more) 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||Services|
|6||–||Services supplied by a director of a company or a body corporate to the said company or the body corporate.||A director of a company or a body corporate||The company or a body corporate located in the taxable territory.||Services|
|7||–||Services supplied by an insurance agent to any person carrying on insurance business.||An insurance agent||Any person carrying on insurance business, located in the taxable territory.||Services|
|8||–||Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company.||A recovery agent||A banking company or a financial institution or a non-banking financial company, located in the taxable territory.||Services|
|9||–||Supply of services by an author(author has been taken in new clause 9A via notfctn no. 22/2019, so removed from this clasue) , music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like.||Author or music composer, photographer, artist, or the like||Publisher, music company, producer or the like, located in the taxable territory.||Services|
|9A||–||Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary works to a publisher.||Author||Publisher located in the taxable territory: But if author give declaration in AnxI to Authority and declaration on INVOICE, that he has taken registration and will pay GST in Forward charge basis, then this RCM clause not applicable.||Services|
|10||–||Supply of services by the members of Overseeing Committee to Reserve Bank of India||Members of Overseeing Committee constituted by the Reserve Bank of India||Reserve Bank of India.||Services|
|11||–||Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs).||Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm.||A banking company or a non-banking financial company, located in the taxable territory.”;||Services|
|12||–||Services provided by business facilitator (BF) to a banking company||Business facilitator (BF)||A banking company,
located in the taxable
|13||–||Services provided by an agent of business correspondent (BC) to business correspondent (BC)||An agent of business
|A business correspondent, located in the taxable territory||Services|
|14||–||Security services (services provided by way of supply of security personnel) provided to a registered person:
Provided that nothing contained in this entry shall apply to, –
(i)(a) a Department or Establishment of the Central Government or State Government or Union territory; or
(b) local authority; or
(c) Governmental agencies; which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply of goods or services; or (ii) a registered person paying tax under section 10 of the said Act.
|Any person other than a body corporate||A registered person,
located in the taxable
|15||–||Services provided by way of renting of a motor vehicle provided to a body corporate. Substituted vide Notfctn No. 29/2019, dtd. 31/12/2019, CT-Rate, Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, 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 with input tax credit only of input service in the same line of business, substituted vide notfct No. 29/2019 Central tax rate: Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6 per cent. to the service recipient.||Any body corporate located in the taxable territory.||Services|
|16||–||Services of lending of securities under Securities Lending Scheme, 1997 (“Scheme”) of Securities and Exchange Board of India (“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.”||Services|
|Section 9(4)||–||Vide Notification No. 01/2019 Central tax Rate, Recinds the Notification No.8/2017, Central tax Rate, which enabled to charge RCM on purchase from URD if in excess of Rs. 5000 in totallity in a day. (Suspeneded)||Services|
|Section 9(4)||–||Government has Notified certain business/Goods under RCM vide notification no. 07/2019, 29/03/2019, in which Promoter has to buy minimum 80% of Goods and Services (as per notfctc CT-R No.03/2019, 29.03.2019) to be used in Construction of Project from Registered dealer. Also Cement and Capital Goods notified if buy from unregistered, then promoter has to pay RCM.||Goods & Services|
|Section 5(3) of IGST Act||IGST||Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient||Any person located in a non-taxable territory||Any person located in the taxable territory other than non-taxable online recipient.||Services|
|Section 5(3) of IGST Act||IGST||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.||Any person located in a non-taxable territory||Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory.||Services|
The purpose of the note is to give overall view and update on RCM and to equip anyone to handle RCM related compliance easily.
However there are explanations, definitions to the notification which we have not produced here to make the note compact, so if required please refer the individual notification as per given in Column above.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor taxguru.in and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.