What is the RCM (Reverse Charge Mechanism) under GST?
Reverse charge is a mechanism under which the recipient of the goods or services is liable to pay the tax instead of the provider of the goods and services. Under the normal taxation regime, the supplier collects the tax from the buyer and deposits the same after adjusting the output tax liability with the input tax credit available. But under reverse charge mechanism (RCM), liability to pay tax shifts from supplier to recipient.
Section 9(3) of the CGST Act, 2017. 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) of the CGST Act, 2017 The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of 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 such supply of goods or services or both.( At present 9(4) will not get effective from 01st February 2019.)
Time of Supply under Reverse Charge Mechanism (RCM)?
Under GST, time of supply means a particular point in time when the goods or services are rendered or supplied. It allows us to find out the tax rate, value and due dates for filing returns. Under Reverse Charge Mechanism, the receiver is entitled to pay GST. However, the time of supply for supplying of goods and services under reverse charge is varying from the supplies which are under forwarding charge
In the case of Goods: Time of supply in case of supplying goods when tax payable under Reverse Charge, whichever is earliest from the following dates:-
If the supplier is located outside India, then the time of supply shall be the earliest of: ‘When the amount is paid i.e. the date of payment’
‘When the recipient records the payment in his books of account’.
In the case of services: Time of supply in case of supplying services when taxes payable under reverse charge mechanism, whichever is earliest from the following dates:-
However, if it is not possible to find out the time of supply in aforementioned cases, the time of supply will be considered the date of entry in the books of account of the recipient of the supply.
The Manner of Payment of GST under Reverse Charge Mechanism
As per section 49(4) of CGST Act’2017, ITC can be used for payment of output tax only. Therefore tax under reverse charge can be paid through cash only without availing the benefit of ITC. The supplier must mention in his tax invoice whether the tax is payable on reverse charge.
Input Tax Credit:
The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services. The only condition is that the goods and services are used or will be used for business or furtherance of business.
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.
Registration Requirement under Reverse Charge Mechanism (RCM):
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.
Applicability of GST Compensation Cess:
GST Compensation Cess will be applicable on tax paid under reverse charge mechanism also. The purpose is to compensate States for loss of revenue on the implementation of GST. This will be applicable for 5 years from the date GST gets implemented.
Important Points to be Taken Care Under RCM :
Note: If in case, a dealer is unregistered under GST, then he is not allowed to deal in any interstate transactions. For any reverse charge mechanism to applicable, there must be only intra-state transactions.
The following services are covered under RCM under the first category:
|Services||Provider of service||Recipient of Service|
|Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessees online recipient (OIDAR)#||Any person who is located in a non- taxable territory||Any person located in the taxable territory other than non-assessee online recipient (Business Recipient)|
|2||Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road||Goods Transport Agency (GTA)||(a) any factory registered under or governed by the Factories Act, 1948;
(b) any society registered under the Societies Registration Act, 1860 or under any other law
for the time being in force in
any part of India;
(c) any co-operative society established by or under any law;
(d) any person registered under CGST/SGST/UTGST Act;
(e) any body corporate established, by or under any law; or
(f) any partnership firm whether registered or not under any law including association of persons.
(g) Casual taxable person
|3||Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services directly or indirectly||An individual advocate or firm of advocates||Any business entity.|
|4||Services provided or agreed to be provided by an arbitral tribunal||An arbitral tribunal||Any business entity.|
|5||Sponsorship services||Any person||Anybody corporate or partnership firm.|
|6||Services provided or agreed to be provided by Government or local authority excluding, –
(1) renting of immovable property, and
(2) services specified below-
|Government or local authority||Any business entity.|
|7||Services provided or agreed to be provided 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||A company or a body corporate.|
|8||Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business||An insurance agent||Any person carrying on insurance business.|
|9||Services provided or agreed to be provided 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.|
|10||Services 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 to a person located in non-taxable territory||Importer as defined under clause (26) of section 2 of the Customs Act, 1962.|
|11||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||Author or music composer, photographer, artist, etc.||Publisher, Music company, Producer|
|12||Radio taxi or Passenger Transport Services provided through electronic commerce operator||Taxi driver or Rent a cab operator||Any person|
|13||Services provided by business facilitator (BF) to a banking company||Business facilitator (BF)||A banking company,
located in the taxable territory
|14||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|
|15||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 Govt. 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 only for the purpose of deducting tax under section 51 of the 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 territory
#Notes:-In case of services provided by e-commerce operators, liability to pay tax lies on the recipient of services. If the assessee has no physical presence in the taxable area, then the representative of such e-commerce operator will be liable to pay tax. If there is no representative, then the assessee has to appoint one who will be liable to pay GST.
|1||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|
|2||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.
|Sr No.||Description of Goods||Supplier of Goods||Recipient of Goods|
|1||Cashew nuts, not shelled or peeled||Agriculturist||Any registered person|
|2||Bidi wrapper leaves
|Agriculturist||Any registered person|
|3||Tobacco Leaves||Agriculturist||Any registered person|
|4||Silk yarn||Agriculturist||Any person who manufactures silk yarn from raw silk / silk worm cocoons for supply of silk yarn|
|5||Supply of lottery||State Government,
Union Territory or
any local authority
|Lottery distributor or selling agent|
|6||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|
|7||Raw cotton||Agriculturist||Any registered person|
|8||Priority Sector Lending
|Any registered person||Any registered person|