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. According to the normal taxation system, the supplier collects the tax from the buyer and deposits the same on adjusting the output tax liability with the input tax credit available.
But in case of reverse charge mechanism, 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 such notification, specify some 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.
Section 9(4) of the CGST Act, 2017
The Government may, on the recommendations of the Council, by such notification, specify that class of registered persons who shall, in respect of the 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.
Important Points to be considered Under RCM :
- Goods and services notified under section 9(3) or section 9(4) must have been registered under GST.
- Under the RCM, the applicable GST must be submitted to the government on every 20th of next month
- The ITC will be available for all the RCM goods and services used for the continuance of business according to the GST paid. Moreover the service acquiring individual, who is also paying reverse charge can take the benefits of an input tax credit.
- There will be no auto-population of details of the GST paid under the RCM in GSTR 2, but it will be subjected to furnishing all details manually
- Wherever the RCM is applicable the invoice must be arranged by the recipient on itself while the invoices along with the consolidated purchases should be issued on a daily basis on all the GST applicable who are under section 31(3).
- Payment vouchers must be issued by the recipient at that the time period of the supplier’s payment.
- The ITC is not available for the RCM.
- The composition scheme registered individuals also come under the reverse charge,
- The RCM is also applicable for advance payments
The following services are covered under RCM under the first category:
Services Covered under Reverse Charge Mechanism (RCM) under GST
- 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 the non-assessees online recipient,
- Services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road
- Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services indirectly or directly.
- Services provided or agreed to be provided by an arbitral tribunal
- Sponsorship services
- Services provided or agreed to be provided by local authority or Government excluding, –
(1) Renting of immovable property, and
(2) Services specified below-
- 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 Government;
- services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
- transport of goods or passengers.
- Services provided or agreed to be provided by a director of a company or a body corporate to the said company
- Services provided or agreed to be provided by an insurance agent to any person carrying on business of insurance
- Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution
- Services provided by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India
- Radio taxi or Passenger Transport Services provided throughout electronic commerce operator
- 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
- Services provided by business facilitator to banking company
- Services provided by an agent of business correspondent to business correspondent
- Security services
- provided to a registered person:
Provided that nothing contained in this entry shall apply to, –
- (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
- a registered person paying tax under section 10 of the said Act
Newly Notified Service Under Notification No. 05/2019 dated 29th March 2019 on which RCM Applicable from 1st April 2019.
- 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
- 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
Goods notified by Government on which GST shall be paid on Reverse Charge Basis
- Cashew nuts, not shelled or peeled
- Bidi wrapper leaves
- Tobacco Leaves
- Silk yarn
- Supply of lottery
- Used vehicles, seized and confiscated goods, old and used goods, waste and scrap
- Raw cotton
- Priority Sector Lending