Reverse Charge Mechanism (RCM) under GST - Explained

This document covers

1. Applicability of Reverse Charge
2. Goods notified
3. Services notified
4. Tax Payable by the e-Commerce
5. Supply of Services by a Goods Transport Agency (GTA)
6. Taxability, RCM of Renting as a Service
7. Invoicing under Reverse Charge Mechanism
8. FAQs on Reverse Charge

1. Applicability of Reverse Charge Mechanism (RCM)

Generally, the supplier of goods or services is liable to pay GST. However, in case of certain notified supplies, the receiver of goods or services is liable to pay GST under reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of goods or services instead of supplier of such goods or services.

Reverse Charge will be applicable in case of following situations

1) Supplies received by registered persons from unregistered suppliers

• GST on reverse charge is levied if there is intra State supply of goods or services or both by an unregistered supplier to a registered person and the value exceed Rs 5000 in a day.
• GST on reverse charge is payable on inter State supply of goods by an unregistered supplier to registered supplier

2) Supply of certain goods or services notified by CBEC

2. Goods notified under Reverse Charge

Reverse Charge is applicable in the case of below notified goods

3. Services notified under Reverse Charge

The following categories of services are notified under reverse charge mechanism. The recipient of services is liable to pay GST in case of following services

4. Tax Payable by the e-Commerce operator on notified services

4.1. Who is an e-Commerce Operator (ECO)

• Electronic Commerce, aka e-Commerce Operators (ECO) displays products as well as services which are supplied by some other person to the consumer on their electronic portal.
• The consumers buy such goods / services through these portals.
• The actual supplier supplies the selected product / service to the consumer on the selection.
• The consideration for the product / service is collected by the ECO from the consumer and passed on to actual supplier after the deduction of ECO commission.

4.2. RCM applicability on e-Commerce Operator (ECO)

The government has notified the specific categories of services where the tax on intra state supplies shall be paid by the E Commerce operator if such services are supplies through it.

1. Services by way of transportation of passengers by a radio taxi, motor cab, minicab and motor cycle
2. Services by way of providing accommodation in hotels, inns, guest houses, clubs etc except where the person supplying such service through e commerce operator is liable for registration under GST act
3. Services by way of housekeeping such as plumbing, carpentering etc except where the person supplying such service through e commerce operator is liable for registration under GST act

5. Supply of Services by a Goods Transport Agency (GTA)

Generally GTA can pay the taxes either on Forward Charge or Reverse Charge

1. Forward Charge: if GTA wants to pay the taxes themselves, 2 GST rates are applicable to them
   1. 5%: GTA’s can pay the taxes @ 5% but they cannot claim any ITC (Input tax Credit)
   2. 12% : GTA’s can pay the taxes @ 12% but they can claim ITC (Input tax Credit)
2. Reverse Charge: If GTA’s don’t want to pay taxes themselves, they can opt for reverse charge

6. Taxability, RCM of Renting as a Service

Taxability of Renting under different circumstances, both residential and commercial spaces.

1. Renting of Residential dwelling for residential purpose
   

   S.No	Landlord	Tenant	Taxability	Who is required to pay GST?
   1	Registered	Registered	18% under RCM	Tenant
   2	Registered	Unregistered	Exempted	NA
   3	Unregistered	Registered	18% under RCM	Tenant

2. Renting of Residential dwelling for Commercial purpose
   

   S.No	Landlord	Tenant	Taxability	Who is required to pay GST?
   1	Registered	Registered	18% under Forward charge	Landlord
   2	Registered	Unregistered	18% under Forward charge	Landlord
   3	Unregistered	Registered	Exempted	NA

7. Invoicing under Reverse Charge Mechanism

• Based on the RCM requirement, w.e.f 01st November 2024, Self invoicing under RCM is mandatory
• Self-Invoicing and maintaining a copy of such invoice (for future reference) is mandatory to claim ITC.
• The business needs to raise the tax invoice within 30 days from the receipt of service.

8. FAQ's on Reverse Charge Bill under GST

1.Is it lawful to collect tax from recipient of supply on reverse charge basis?

Yes, as long as the tax is on the subject of levy, the Government is free to collect this tax from any person either the supplier or the recipient or anyone else. Even a third party can be called upon to deposit the tax provided there is some nexus such as collection of payment for the supply between two other persons.

2.What is the effect of reverse charge on input tax credit?

The recipient who pays tax on reverse charge basis can take the input tax credit of the tax paid under reverse charge. For supplier whose tax is paid by the recipient, value of such supply will be treated as ‘exempt supply’.

3.In case supplier has paid GST which, was payable by recipient on reverse charge, is recipient discharged from the liability to pay tax on reverse charge?

No, even if supplier has somehow paid tax, reverse charge liability must be discharged by the recipient.

4.Is GST wrongly paid by supplier available as input tax credit (ITC) to recipient? [In case of Reverse Charge] ?

No, GST wrongly paid by supplier cannot be claimed as input tax credit (ITC) by recipient in case of supply reported in FORM GSTR-1 as "Supplies attracting tax on reverse charge basis". However, the supplier can claim for refund of tax wrongly paid.

5.Is condition to pay supplier within 180 days applicable to supplies covered by reverse charge?

No, second proviso to Section 16(2) of the CGST Act requiring the recipient to make payment towards the value of supply along with tax payable thereon within a period of 180 days does not apply to supplies on which tax is payable on reverse charge basis.

6.M/s XYZ Pvt. Ltd. imported some goods on which it was liable to pay GST under reverse charge. While the goods were lying at port, goods were lost or destroyed due to some natural disaster. In this case will it be liable to GST?

In case of natural disaster or loss, no import duty is levied, therefore no GST will be applicable.