If you are a taxpayer under the Goods and Services Tax (GST) regime, you may have heard of the term RCM or Reverse Charge Mechanism. But do you know what it means and how it affects you? In this blog post, we will explain the concept and scope of RCM, the list of services under RCM in GST 2022, and the implications for taxpayers.
What is RCM?
RCM stands for Reverse Charge Mechanism, which is a system under GST where the recipient of goods or services is liable to pay the tax instead of the supplier. This is applicable in certain cases, such as:
- Supply of certain goods and services specified by the CBIC, such as goods transport agency, recovery agent, director of a company, etc.
- Supply from an unregistered dealer to a registered dealer, subject to certain conditions and exemptions.
- Import of services from outside India, regardless of whether the supplier and recipient are registered or not.
The main objective of RCM is to prevent tax evasion and ensure compliance by suppliers who are not registered under GST or are outside the tax net. It also shifts the burden of tax collection from the small and unorganized sector to the large and organized sector.
What is the List of Services under RCM in GST 2022?
This section is dependent upon the type of supplier and/or type of supply. The following goods are listed in the notification:
| Sr No. | Supply of Goods | Supplier of Goods | Recipient of Goods |
|---|---|---|---|
| 1 | Cashew Nuts (unshelled/unpeeled) | Agriculturist | Any registered person |
| 2 | Bidi Leaves (Tendu) | Agriculturist | Any registered person |
| 3 | Tobacco Leaves | Agriculturist | Any registered person |
| 4 | Silk Yarn | Individuals or entities involved in silk yarn production from raw silk | Any registered person |
| 4A | Raw Cotton | Agriculturist | Any registered person |
| 5 | Lottery | State Government, Union Territory, or local authority | Lottery distributor/selling agent |
| 6 | Used vehicles, confiscated goods, old and used goods, waste, and scrap | Central Government, State Government, Union territory, or local authority | Any registered person |
The services listed in the notice include:
| Sr No. | Supply of Services | Supplier of Services | Recipient of Services |
|---|---|---|---|
| 1 | Taxable services rendered by a person located in a non-taxable territory, received by a person in a taxable territory other than a non-assessee online recipient | Individual or entity in a non-taxable country | Individual or entity in a taxable country |
| 2 | Services provided by a Goods Transport Agency (GTA) for road transportation of goods | Goods Transport Agency: a) Registered factory b) Registered society c) Cooperative society established by law d) Registered under CGST/SGST/UTGST Act e) Body-corporate f) Partnership firm g) Casual taxable person | Any entity availing transportation services |
| 3 | Legal services provided by an individual advocate or a firm of advocates | Individual advocate or firm of advocates | Any business entity |
| 4 | Services provided by an arbitral tribunal | Arbitral tribunal | Any business entity |
| 5 | Sponsorship services | Any individual or entity offering sponsorship | Any body-corporate or partnership firm |
| 6 | Services provided by government or local authority excluding specific categories | Government or local authority excluding: a) Renting immovable property b) Specific services such as those provided by the Department of Posts, aircraft/vessel services, transport of goods/passengers | Any business entity |
| 7 | Services provided by a director of a company or a body corporate | Director of a company or a body corporate | Company or body corporate |
| 8 | Services provided by an insurance agent to entities engaged in insurance business | Insurance agent | Entities engaged in insurance business |
| 9 | Services provided by a recovery agent to banking or non-banking financial entities | Recovery agent | Banking company, financial institution, or non-banking company |
| 10 | Transportation services of goods by ship/boat/vessel from a non-taxable territory to the customs station in India | Person in non-taxable territory | Customs station in India |
| 11 | Transfer or granting the use or enjoyment of copyrights related to music, authorship, photography, or artistic work | Copyright holder: Author, composer, photographer, etc. | Publisher, music company, producer |
| 12 | Radio taxi or passenger transport services facilitated by an E-commerce operator | Taxi driver or Rent-a-cab operator | Any individual or entity availing the service |
| 13 | Services provided by members of the Overseeing Committee to the Reserve Bank of India | Members of the Overseeing Committee established by RBI | Reserve Bank of India |
Also Read: What Role GST Software Plays For Your Business?
What are the Implications for the Taxpayers?
If you are a taxpayer who is liable to pay tax under RCM, you need to be aware of the following implications:
- You need to register under GST, even if your turnover is below the threshold limit, as there is no exemption for RCM.
- You need to issue a self-invoice for the goods or services received from the supplier and pay the tax to the government on or before the due date.
- You need to report the details of the supplies under RCM in your GST returns, such as GSTR-3B and GSTR-1.
- You can claim the input tax credit of the tax paid under RCM, subject to the conditions and restrictions prescribed under the GST law.
If you are a supplier who is not liable to pay tax under RCM, you need to be aware of the following implications:
- You do not need to register under GST unless you are engaged in any other taxable supply.
- You do not need to issue a tax invoice to the recipient, as the recipient will issue a self-invoice.
- You do not need to report the details of the supplies under RCM in your GST returns, as the recipient will report them.
- You cannot claim the input tax credit of the tax paid by the recipient under RCM, as you are not the person liable to pay the tax.
RCM is a special provision under GST that affects both the suppliers and the recipients of goods or services in certain cases. It is important to understand the concept and scope of RCM, the list of services under RCM in GST 2022, and the implications for the taxpayers. This will help you to comply with the GST law and avoid any penalties or interest.
