An Overview on Reverse Charge Mechanism (RCM) Under GST Act, 2017
Reverse Charge Mechanism
Meaning :- As per
Section 2(98) reverse charge means the liability to pay tax by the recipient of
supply of goods & services or both intended of the supplier of such goods
or services or both under sub-section (3) or sub-section (4) of section 9, or
under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods
& Service Tax Act;
As per above definition it is
clear that RCM is the mechanism in which receiver of the services or goods
liable to pat tax in place of service or goods provider.
Registration :- A person who
is required to pay tax under reverse charge has to compulsorily register under
GST and the threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category
states except J & K) is not applicable to them.
ITC: A supplier cannot take ITC of GST paid on goods or services
used to make supplies on which recipient is liable to pay tax. Only receiver
can avail the ITC on RCM paid by him.
Time of Supply :- The time of supply is differ from the supplies
which are under forward charges. In case of supply of goods , time of supply is
earliest of :-
a) date of receipt of goods; or
b) date of payment as per books
of account or date of debit in bank account, whichever is earlier; or
c) the date immediately following thirty days
from the date of issue of invoice or similar other document.
In case of supply of services, time of supply
is earliest of –
a) date of payment as per books of account or
date of debit in bank account, whichever is earlier; or
b) the date immediately following sixty days
from the date of issue of invoice or similar other document. Where it is not
possible to determine time of supply using above methods, time of supply would
be date of entry in the books of account of the recipient.
Compliances in respect of supplies under reverse charge mechanism:
1. As per section 31 of the CGST
Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to
mention whether the tax in respect of supply in the invoice is payable on
reverse charge. Similarly, this also needs to be mentioned in receipt voucher
as well as refund voucher, if tax is payable on reverse charge.
2. Maintenance of accounts by
registered persons: Every registered person is required to keep and maintain
records of all supplies attracting payment of tax on reverse charge
3. Any amount payable under
reverse charge shall be paid by debiting the electronic cash ledger. In other
words, reverse charge liability cannot be discharged by using input tax credit.
However, after discharging reverse charge liability, credit of the same can be
taken by the recipient, if he is otherwise eligible.
4. Invoice level information in
respect of all supplies attracting reverse charge, rate wise, are to be
furnished separately in the table 4B of GSTR-1.
5. Advance paid for reverse
charge supplies is also leviable to GST. The person making advance payment has
to pay tax on reverse charge basis.
Supplies of Goods under RCM :-
1.
Cashew nuts, not shelled or peeled if
supplied by Agriculturist.
2.
Bidi wrapper leaves (Tendu) if supplied by
Agriculturist.
3.
Tobacco Leaves if supplied by Agriculturist.
4.
Silk Yarn if supplied by Any person who manufactures
silk yarn from raw silk or silk worm cocoons for supply of silk yarn
5.
Raw Cotton if supplied by Agriculturist
6.
Supply of lottery if supplied by Central
government, State Government, union Territory & Local Authority.
7.
Used vehicle, seized and confiscated goods,
old and used goods, waste and scrap if supplied by Central government, State Government,
union Territory & Local Authority.
Supplies of Services under RCM :-
1.
Any service supplied by any person who is
located in a non-taxable territory to any person other than nontaxable online
recipient.
2.
GTA Services supplied by Goods Transport
Agency (GTA) who has not paid integrated tax at the rate of 12%.
3.
Legal Services by advocate (An individual
advocate including a senior advocate or firm of advocates)
4.
Services supplied by an arbitral tribunal to
a business entity.
5.
Services provided by way of sponsorship to
any body corporate or partnership firm
6.
Services supplied by the Central Government,
State Government, Union territory or local authority to a business entity
excluding, -
a)
renting
of immovable property, and
b)
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.
7.
Services supplied by a director of a company
or a body corporate to the said company or the body corporate
8.
Services supplied by an insurance agent to
any person carrying on insurance business
9.
Services supplied by a recovery agent to a
banking company or a financial institution or a non-banking financial company
10.
Services supplied by a person located in
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
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) Author or music
composer, photograph her, artist, or the like Publisher, music company,
producer or the like, located in the taxable territory (a) of the Copyright
Act, 1957 relating to original literary, dramatic, musical or artistic works to
a publisher, music company, producer or the like
12.
Supply of services by the members of
Overseeing Committee to Reserve Bank of India
As per notification no 29/2018 dated 31st
Dec 2018 and will be effective from 01st Jan 2019. following are the
services also covered under the provision of RCM :-
A) Services
provided by business facilitator (BF) to a banking company .
B) Services
provided by an agent of business
correspondent (BC) to business correspondent (BC).
C) Security
services (services provided by way of supply of security personnel) provided to
a registered person: Provided that
nothing contained in this entry shall apply to, -
(i)
(a) a Department or Establishment of the Central
Government 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 (12 of 2017) only for the purpose of deducting tax under section 51
of the said Act and not for making a taxable supply of goods or services; or
(ii)
a registered person paying tax under section 10 of the said Act.
If these service of security
provided by the person other than the body corporate.
As per notification no 22/2019 dated 30th
Sep 2019 following are the services also covered under the provision of RCM :-
A) Services
provided by way of renting of a motor vehicle provided to a body corporate if
services provided by Any person other than a body corporate, paying central tax
at the rate of 2.5% on renting of motor vehicles with input tax credit only of
input service in the same line of business
B) Services
of lending of securities under securities lending scheme 1997 of security and
exchange board of India (Sebi)
As per notification no 05/2022 dated 13th
Jul 2022 following are the services also covered under the provision of RCM :-
A. The
supplier has taken registration under the CGST Act, 2017 and exercised the
option to pay tax on the services of GTA in relation to transport of goods
supplied by him under forward charge; and
B. The
supplier has issued a tax invoice to the recipient charging Central Tax at the
applicable rates and has made a declaration as prescribed in Annexure III on
such invoice issued by him.”;
C. Services
provided by the way of renting of residential dwelling to a registered person.
Further government has clarify that if the rent paid for accommodation of the
employee than no need to pay RCM.
List of the
notification which issued from time to time pertains with RCM
1.
Notification No 13/2017 – CGST (Rate) dated 28th
Jun 2017.
2.
Notification No 22/2017 – CGST (Rate) dated 22nd
Aug 2017.
3.
Notification No 33/2017 – CGST (Rate) dated 13th
Oct 2017.
4.
Notification No 3/2018 – CGST (Rate) dated 25th
Jan 2018.
5.
Notification No 15/2018 – CGST (Rate) dated 26th
July 2018.
6.
Notification No 29/2018 – CGST (Rate) dated 31st
Dec 2018.
7.
Notification No 5/2019 – CGST (Rate) dated 29th
March 2019.
8.
Notification No 22/2019 – CGST (Rate) dated 30th
Sep 2019.
9.
Notification No 05/2022 – CGST (Rate) dated 13th
Jul 2022.
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