Reverse Charge Mechanism (RCM) under the Goods and Services Tax helps to shift the tax burden from the supplier to the recipient as the recipient of goods or services is liable to pay the GST instead of the supplier.
Table of Contents
- When is RCM applicable?
- Supply from an Unregistered dealer to a Registered dealer
- Services through an e-commerce operator
- Other Notified Goods and Services By CBIC
- Notified Goods for RCM
- Notified Services for RCM
- The Time of Supply (TOS) in case of RCM
- ITC for the GST paid under the RCM
- Some Important Points
As we all must be aware of this fact that GST is normally charged by Supplier of Goods/Services. But there are some cases where the Recipient will be liable to pay GST instead of Supplier. This structure of charging GST is called Reverse Charge Mechanism (RCM). Now Let's Understand it step by step:
When is RCM applicable?
There are following cases when charging GST on reverse charge basis are mandatory:
*Supply from an Unregistered dealer to a Registered dealer
If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier. This is a case where the concept of Self Invoicing came into being. The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.
*Services through an e-commerce operator
If an e-commerce operator supplies services then the reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.
For example, Ola provides services of transportation of Passenger through Radio Taxis. Then Ola has to pay GST on behalf of actual service provider i.e. Driver.
If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator shall appoint a representative who will be held liable to pay GST.
*Other Notified Goods and Services By CBIC:
There are various Goods and Services which are notified by CBIC which will be covered under RCM. Those are provided as follows:
Notified Goods for RCM
- Cashew nuts, not shelled or peeled,
- Bidi wrapper leaves (tendu),
- Tobacco leaves,
- Silk yarn,
- Raw Cotton,
- Supply of lottery,
- Used vehicles, seized and confiscated goods, old and used goods, waste and scrap,
- Priority Sector Lending Certificate
Notified Services for RCM
- Services by Goods transportation Agency (GTA)
- Services Provided by Advocates to Business Entity
- Services Provided by Arbitral Tribunal to Business entity
- Sponsorship service to any Body corporate/Firm
- Services provided By Central Govt./State Govt./UT/Local Authority to Business Entity
- Services provided by Director of a Company
- Services Provided by Insurance Agents
- Services Provided by Recovery Agents to a Banking co./NBFC
- Supply of services by an author, music composer, photographer, artist or the like to s to a publisher, music company, producer or the like.
- -Supply of services by the members of Overseeing Committee to RBI.
The Time of Supply (TOS) in case of RCM
TOS is considered as the point in time when the Goods/Services would be considered as Supplied and consequently liability for GST would arise. The TOS in case of RCM would be as follows:
|
In case of GOODS |
In case of Services |
|
The TOS would be Earliest of the following:
If it is not possible to determine the TOS by the above, the time of supply shall be the date of entry in the books of account of the recipient. *This point is no more applicable based this Notification No. 66/2017 - Central Tax issued on 15.11.2017 |
The TOS shall be the earliest of the following dates:
If it is not possible to determine the TOS by the above, the time of supply shall be the date of entry in the books of account of the recipient. |
ITC for the GST paid under the RCM
Recipients can avail ITC on GST paid under RCM only if the goods or services received are used or intended for business purposes. But suppliers cannot claim Input Tax Credit for GST paid. It's important to note that recipients cannot use this ITC to pay output GST on goods or services under reverse charge, such GST liability must be settled in cash.
Some Important Points
Is Input Tax Credit allowed under RCM? If yes, then on what document?
Tax paid on RCM basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit on basis of Self Invoice made by Recipient.
What if an Input Service Distributor receives supplies liable to Reverse Charge?
An ISD cannot make purchases liable to Reverse Charge. If the ISD wants to procure such supplies and take the Reverse Charge paid as credit, the ISD should register as a Normal Taxpayer.
What if the receiver of goods and/or services who is required to pay tax under RCM himself an Unregistered Dealer?
All taxpayers required to pay tax under reverse charge have to register for GST and the threshold of Rs 20 Lakhs/10Lakhs is not applicable to them.
The author can also be reached at @taxeffects.blogspot.com or niteshkbind@gmail.com.
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