All about Reverse Charge Mechanism (RCM) under GST

Last Updated On: July 15, 2020, 10:54 p.m.
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REVERSE CHARGE MECHANISM (RCM) UNDER GST

What is Reverse Charge Mechanism?

Reverse charge Mechanism is defined under Section 2(98) which means the liability to pay tax by the recipient of the goods or services or both instead of the supplier of the goods or services or both under subsection(3) or subsection(4) of section 9 or, under subsection(3) or subsection(4) of section 5 of IGST Act.

REGISTRATION:

A person who is required to pay tax under reverse charge has to mandatorily register under GST and the threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category states except for Jammu & Kashmir) is not applicable among them.

Leviability of RCM (section-9):

  • Section-9(3): On the recommendation of the Council, the government may notify specific 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): On the recommendation of the Council, the government may notify specific 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.

How Time of supply under RCM is determined?

  1. For goods under Reverse Charge Mechanism section-12(3) the time of supply will be earliest of the following:
  • The date of the receipt of goods; or
  • The date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  • The date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, by the supplier.
  1. For services under Reverse Charge Mechanism Section-13(3) the time of supply will be earliest of the following:
  • The date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.
  • The date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, by the supplier.

Note: If it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of the supply.

 

COMPLIANCES IN RESPECT TO SUPPLIES MADE UNDER RCM:

  • According to section 31 of the CGST Act,2017 read with rule 46, every tax invoice has to mention whether the tax in respect to the supply in the invoice is payable on reverse charge. Similarly, receipt voucher as well as refund voucher, if tax is payable on reverse charge should be mentioned.
  • Every registered person under RCM is required to keep and maintain records of all supplies attracting payment of tax on reverse charge.
  • Reverse charge liability cannot be discharged by using the input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.
  • Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in table 4B of GSTR-1.
  • Advance paid for reverse charge supplies is also leviable to GST. The person making the advance payment has to pay tax on reverse charge basis.

 

SUPPLY OF GOODS UNDER REVERSE CHARGE MECHANISM:

SL.NO Description of supply of Goods Supplier of goods Recipient of goods
1.

Cashew nuts, not shelled or peeled

Agriculturist Any registered person
2. Bidi wrapper leaves (tendu) Agriculturist Any registered person
3. Tobacco leaves

Agriculturist

Any registered person
4. Silk yarn Any person who manufactures silk yarn from raw silk or silkworm cocoons for the supply of silk yarn Any registered person
5. Raw cotton Agriculturist Any registered person
6. Supply of lottery State Government, Union Territory or any local authority Lottery distributor or selling agent
7. 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

 

SUPPLY OF SERVICES UNDER REVERSE CHARGE MECHANISM:

Sl.No Description of supply of Goods Supplier of goods Recipient of goods
1. Any service supplied by any person who is located in non-taxable territory to any person other than the non-taxable online recipient Any person located in a non-taxable territory Any person located in the taxable territory other than the non-taxable online recipient.
2. GTA Services Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12% Any factory, society, cooperative society, a registered person, body corporate, partnership firm, casual taxable person; located in the taxable territory
3. Legal Services by advocate An individual advocate including a senior advocate or firm of advocates Any business entity located in the taxable territory 4 Services supplied by an arbitral tribunal to a business entity An arbitral
4. Services supplied by an arbitral tribunal to a business entity An arbitral tribunal Any business entity located in the taxable territory
5. 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
6.

Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, -

(1) renting of immovable property, and (2) services specified below- (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; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers

Central Government, State Government, Union territory or local authority Any business entity located in the taxable territory
7. 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
8. 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
9. 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
10. Services supplied by a person located in the 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, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory
11.

Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1)

(a) 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, photograph her, artist, or the like Publisher, music company, producer or the like, located in the taxable territory
12. 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.

 

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