Applicability of Reverse Charge Mechanism (RCM)
Section 2(98) of the CGST Act, 2017 has defined the term “Reverse Charge” and the same is reproduced as follows
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.
1) Reverse Charge will be applicable in case of following situations
Supplies received by registered persons from unregistered suppliers
Section 9(4) of the CGST Act, 2017 provides the provisions of reverse charge and the same is reproduced as follows:
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
Goods notified under Reverse Charge
Goods like Cashew nuts (not shelled / peeled), bidi wrapper leaves, tobacco leaves, supply of lottery, silk / yarn etc. are taxable under reverse charge mechanism i.e., recipient is liable to pay tax.
Service 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.
Supply of Services by Goods Transport Agency (GTA) in respect of transportation of goods by road to any factory, society, co-operative society, body corporate, any person registered under GST, partnership firm, casual taxable person
Supply of services by an individual advocate including a senior advocate to any business entity located in the taxable territory.
Supply of services by an arbitral tribunal to a business entity.
Services provided by way of Sponsorship to a body corporate or partnership firm.
Services supplied by the central/State government or local authority to a business entity excluding renting of immovable property, services by the department of post, services in relation to aircraft or vessel, transport of goods or passengers.
Supply of services by a director of a company/ body corporate to the said company/body corporate.
Services supplied by an insurance agent to any person carrying on such business (Insurance Business).
Services supplied by a recovery agent to a banking company or financial institution or NBFC
Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use of copyright relating to original literary, dramatic, musical or artistic works to publisher, company, producer or the like.
Tax Payable by the e-Commerce operator on notified services
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.
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.
Services by way of transportation of passengers by a radio taxi, motor cab, minicab and motor cycle
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
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
Real Estate Sectors under RCM:
On the recommendations of the GST Council in its 33rd Meeting and decision has taken in its 34th meeting. In case of a project developer or construction of apartment by the developer, 80% of inputs and input services [other than capital goods, TDR/JDA, FSI, long-term lease (premium) shall be purchased from registered persons. On shortfall of purchases from 80% tax shall be paid by the builder @18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @28% under RCM, and on capital goods under RCM at applicable rates in terms of Section 9(4) the CGST Act, 2017, in terms of C.B.I & C., Notification No. 7/2019-C.T. (Rate), dated 29th March, 2019.
Input Tax Credit under RCM
A supplier cannot take Input Tax Credit of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax under reverse charge.
The recipient can avail Input Tax Credit of GST amount that is paid under reverse charge on receipt of goods or services by him.
GST paid on goods or services under reverse charge mechanism is available as ITC to the registered person provided that such goods or services are used or will be used for business or furtherance of business.
The ITC is availed by recipient cannot be used towards payment of output tax on goods or services, the payment of tax under reverse charge only on cash.
Drafted by:
CS.A.Maniraj.,B.Com.,ACS.,CA(Fin), Independent Director
Certified CSR Professional., Certified GST Professional.
