The Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) regime shifts the responsibility of paying GST from the seller (supplier) to the buyer (recipient). In a typical GST scenario, the supplier collects and remits the tax. However, under RCM, the recipient of goods or services is liable to pay the GST directly to the government, making it an important provision for both registered taxpayers and businesses.
Reverse Charge refers to the mechanism where the recipient of goods or services is responsible for paying GST instead of the supplier. It is typically applied in cases where the supplier is unregistered, and in certain specified transactions as determined by the GST law.
RCM is applicable in two primary cases:
Several goods and services fall under the RCM, as notified by the government. For instance:
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| Goods | Supplier | Recipient |
| Bidi wrapper | Agriculturist | Any registered person |
| Cashew nuts | Agriculturist | Any registered person |
| Silk yarn | Manufacturer of silk yarn | Any registered person |
| Raw cotton | Agriculturist | Any registered person |
| Service | Supplier | Recipient |
| Director of a company | Company director | Company or body corporate |
| Goods Transport Agency (GTA) | GTA | Registered person under CGST Act |
| Advocate services | Individual advocate or firm | Any business entity |
| Insurance agent | Insurance agent | Person carrying on insurance business |
In cases where the recipient purchases goods or services from an unregistered supplier, the recipient must issue a self-invoice to comply with GST laws. The recipient documents and pays the GST amount through the concept of self-invoicing when dealing with unregistered suppliers.
For instance, if a registered business receives supplies from an unregistered supplier under RCM, it must generate and pay tax through self-invoicing, ensuring compliance with GST.
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The Reverse Charge Mechanism under GST plays a vital role in ensuring tax compliance, especially in cases involving unregistered suppliers or specific services. Businesses need to understand when RCM applies, comply with self-invoicing requirements, and be mindful of the goods and services covered under RCM. Failure to adhere to RCM requirements can result in penalties and non-compliance issues. Proper understanding and implementation of RCM can aid in smooth GST compliance and avoid any tax-related complications.
Reverse Charge Mechanism (RCM) is a system under GST where the recipient, instead of the supplier, is liable to pay the GST on goods or services.
RCM is applicable when a registered recipient receives goods or services from an unregistered supplier, or for certain notified goods and services.
Yes, the recipient can claim ITC on the tax paid under RCM, provided the goods or services are used for business purposes.
Self-invoicing is required when a registered recipient receives supplies from an unregistered supplier under RCM, as the supplier cannot issue a GST-compliant invoice.
The e-commerce operator is liable to pay GST under RCM for specific services such as plumbing, beautician, etc., facilitated by them.
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