Under Goods and Service Tax (“GST”), generally, a supplier of goods and services is liable to pay GST for the supplies, i.e., at the time of supply of goods or service supplier charges GST over sales consideration and collect the same from recipient and by due date deposit such GST amount to the account of government
On the contrary, in the case of Reverse Charge Mechanism (“RCM”) under GST, the recipient himself is liable to pay the tax for goods and services received by him instead of the supplier. Therefore, the recipient is liable for all compliance under GST.
Here we are providing a close look into the RCM (Reverse Charge Mechanism) to make it easier for you to understand. Scroll down and have a look.
1. When does Reverse Charge under GST apply?
Power to levy GST on RCM basis is given under Section 9(3), 9(4) and 9(5) of Central Goods and Service Tax Act, 2017 which specifies various conditions under which GST shall be payable under RCM. Those are as follows-
1.1 Reverse charge on supply of specified goods and services
1.2 Reverse charge on supply by an unregistered person to a registered person.
1.3 Reverse charge on supplies through e-commerce operator.
1.1 Reverse charge under GST on Supply of specified goods and services (Section 9(3) of CGST Act, 2017)
Section 9(3) of CGST Act, 2017 authorises the government to specify certain category of goods and services, in consultation with GST Council, where GST shall be payable by recipient under RCM.
CBEC (Central Board of Excise & Customs) has specified the following category of goods and services under section 9(3) of CGST Act, 2017 where GST is payable under RCM. That are-
1.1.1 List of Goods on which GST would be paid under reverse charge under GST
- Cashew nuts, not shelled or peeled
- Tobacco leaves
- Bidi wrapper leaves (tendu)
- Raw cotton
- Silk yarn
- Supply of lottery
- Priority Sector Lending Certificate
- Used vehicles, old and used goods, seized and confiscated goods, waste and scrap
1.1.2 List of services on which GST would be paid under reverse charge under GST
Following services are specified under RCM vide notification No. 13/2017 dated 28th June, 2017:
| Nature of Service |
Supplier of Service |
Recipient of Service (Liable to pay GST under RCM) |
| Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road |
Goods Transport Agency (GTA) |
Specified persons |
| Services supplied by an individual advocate including a senior advocate |
An individual advocate including a senior advocate or firm of advocates |
Any business entity located in the taxable territory. |
| Services supplied by an arbitral tribunal to a business entity. |
An arbitral tribunal. |
Any business entity located in the taxable territory. |
| Services provided by way of sponsorship to any body corporate or partnership firm |
Any person |
Any body corporate or partnership firm located in the taxable territory. |
| Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding certain services |
Central Government, State Government, Union territory or local authority |
Any business entity located in the taxable territory. |
| Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the GST law |
Central Government, State Government, Union territory or local authority |
Any person registered under the GST law |
| Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter. |
Any person |
Promotor |
| Long term lease of land (30 years or more) for consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) or periodic rent for construction of a project by a promoter. |
Any Person |
Promoter |
| Services supplied by a director of a company or a body corporate |
A director of a company or a body corporate |
The company or a body corporate located in the taxable territory. |
| Services supplied by an insurance agent to any person carrying on insurance business. |
An insurance agent |
Any person carrying on insurance business, located in the taxable territory |
| Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company. |
A recovery agent |
A banking company or a financial institution or a non-banking financial company, located in the taxable territory |
| 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 |
Author or music composer, photographer, artist, or the like |
Publisher, music company, producer or the like, located in the taxable territory. |
| services by an author by way of transfer or permitting the use of a copyright covered under Section 13(1)(a) of the Copyright Act, 1957 relating to original literary works to a publisher. |
Author |
Publisher located in the taxable territory subject to given exception |
| Supply of services by the members of Overseeing Committee to Reserve Bank of India |
Members of Overseeing Committee constituted by the Reserve Bank of India |
Reserve Bank of India |
| Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs) |
Individual Direct Selling Agents (DSAs) |
A banking company or a non-banking financial company, located in the taxable territory |
| Services provided by business facilitator (BF) to a banking company |
Business facilitator (BF) |
A banking company, located in the taxable territory |
| Services provided by an agent of business correspondent (BC) to business correspondent (BC). |
An agent of business correspondent (BC) |
A business correspondent, located in the taxable territory. |
| Security services (services provided by way of supply of security personnel) provided to a registered person |
Any person other than a body corporate |
A registered person, located in the taxable territory. |
| Services of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient |
Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6 percent to the service recipient |
Any body corporate located in the taxable territory |
| Services of lending of securities under Securities Lending Scheme, 1997 (“Scheme”) of Securities and Exchange Board of India (“SEBI”), as amended. |
Lender |
Borrower |
Note:
- In case suppliers of goods or services, who are only engaged in supplying goods or services, on which tax to be paid by Recipient u/s 9(3), such supplier are exempted from GST registration. Notification No. 5/2017 – Central Tax
1.2 Reverse charge under GST on Supplies made to a Registered Dealer from an Unregistered Dealer (Section 9(4) of CGST Act, 2017)
distribuidores no registrados
Under section 9(4), the government would specify a list of goods and services, where GST under RCM would be paid by the recipient of goods and services.
In this case, The registered dealer needs to raise a self-invoice to pay the GST under RCM. In the case of Inter-state purchases, IGSt needs to be paid by the buyer. For Intra-state supplies, the purchaser has to pay CGST and SGST.
Department has notified following goods vide Notification No. 07/2019- Central Tax (Rate) dated 29th March, 2019 to be taxed under section 9(4) of CGST Act, 2017 by recipient under reverse charge mechanism:
| Category of Supply of goods and services |
Recipient liable to pay GST under RCM |
Date of applicability |
Reference |
| Supply of such goods and services which constitute the shortfall from the minimum value of goods or services purchased by a promoter for construction of project, in a financial year (or part of the financial year till the date of issuance of completion certificate or first occupation, whichever is earlier) as prescribed in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017 |
Promoter |
1st April, 2019 |
Notification No. 07/2019- Central Tax (Rate) dated 29th March, 2019 |
| Cement falling in chapter heading 2523 in the first schedule to the Customs Tariff Act, 1975 (51 of 1975) |
Promoter |
1st October, 2019 |
Notification No.24/2019- Central Tax (Rate) dated 30th September, 2019 |
| Capital goods falling under any chapter in the first schedule to the Customs Tariff Act, 1975 (51 of 1975) supplied to a promoter for construction of a project on which tax is payable or paid at the rate prescribed for items (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017. |
Promoter |
1st April, 2019 |
Notification No. 07/2019- Central Tax (Rate) dated 29th March, 2019 |
There are many developments on RCM on supply of goods and services by unregistered persons over the period of time. With help of the below table, we can see the changes over time in case of RCM on supply by an unregistered person.
| Period |
Applicability of GST under RCM u/s 9(4) of CGST Act, 2017 |
Reference |
| 1st July, 2017 to 12th October, 2017 |
GST under RCM was applicable on supply of goods or services received from unregistered dealers u/s 9(4) of CGST Act, 2017 provided aggregate value of supplies received from all or any of unregistered person is INR 5000 or more in a day |
Notification No. 8/2017-Central Tax (Rate) dated 28th June, 2017 |
| 13th October, 2017 to 31st March, 2018 |
All supplies received from unregistered dealers were exempted from Section 9(4) of CGST Act, 2017 irrespective of amount. |
Notification No. 38/2017 – Central Tax (Rate) dated 13th October, 2017 (amending Notification No. 8/2017) |
| 31st March, 2018 to 30th June, 2018 |
Above mentioned exemption extended |
Notification No. 10/2018 – Central Tax (Rate) dated 23rd March, 2018 |
| 1st July, 2018 to 30th September, 2018 |
Above mentioned exemption extended |
Notification No. 12/2018 – Central Tax (Rate) dated 29th June, 2018 |
| 1st October, 2018 to 30th September, 2019 |
Above mentioned exemption extended |
Notification No. 22/2018 – Central Tax (Rate) dated 6th August, 2018 |
Note: Original N/No. 8/2017-Central Tax (Rate) dated 28th June, 2017 rescinded by Notification No. 01/2019-Central Tax (Rate) dated 29th Jan, 2019 with effect from 1st Feb, 2019. Therefore, all exemptions stood withdrawn with effect from 1st Feb, 2019.
1.3 Reverse charge on supplies through e-commerce operator (Section 9(5))
Lots of service providers provide services through electronic platforms as it helps in creating a vast customer base. However, considering the scale of their operator and they are numerous, sometimes it may not be possible to track all. To ease compliance, the government has created liability of GST compliance on e-commerce operators.
Section 9(5) of CGST Act empowers the government to specify certain category of services supplied intra-state through e-commerce operators where e-commerce operators would be liable to pay GST. Accordingly, when a person supplies his service through e-commerce operator then GST on such service shall be paid by e-commerce operator under RCM.
If an e-commerce operator does not have presence in any taxable territory then any person representing such e-commerce operator shall be liable to pay GST.
For instance, UrbanClap renders services of electricians, plumbers, beauticians, etc. Here, the e-commerce platform- “UrbanClap” is liable to pay GST, and it will be collected from the consumers who are receiving the services, not from the registered service providers.
In case, an e-commerce company doesn't have the physical presence within the taxable territory, they must have a person who will represent the electronic commerce operator, and this individual will be liable to pay the tax amount.
2. Due date of RCM liabilities under GST
Time of supply determines the point of time in which goods or services are considered as supplied and accordingly, liability for payment of taxes arises. It helps the supplier to calculate the taxable amount (IGST/CGSt/SGST) and identify the due date of payment of taxes mentioned in the invoice. Time of supply is different for goods and services. Take a look.
2.1 Due date RCM under GST in case of supply of Goods
When recipient is liable to pay GST under RCM on goods received then time of supply shall be the earliest of the below dates-
- The date of receipt of goods or
- Date of payment as entered in the books of account of the recipient or date on which the payment is debited in his bank account, whichever is earlier or
- 30 days immediately following date of invoice issued by supplier
In case, the date can not be specified by the above mentioned method then the time of supply will be the date of entry in the account books of the recipient and GST liabilities under GST would be paid accordingly.
Por ejemplo:
- The good is received on 15th May 2020
- Date of payment for such supply 20th June, 2020
- The date mentioned in the invoice is 12th May 2020
- Date of entry in the books of the receiver is 18th May 2020
For this, the time of supply of the goods will be 15th May 2020.
2.2 Due date RCM under GST in case of supply of Services
Al igual que ocurre con el momento del suministro de bienes, el momento del suministro de servicios debe ser la fecha más temprana de las siguientes:
- La fecha de pago registrada en los libros del receptor o la fecha en que se debita el pago de su cuenta bancaria, lo que ocurra primero, o
- 60 días a partir de la fecha de la factura emitida por el proveedor
Cuando el momento del suministro no pueda determinarse mediante el método mencionado anteriormente, se deberá considerar como fecha del suministro la fecha de registro en los libros contables del receptor.
Por ejemplo:
- Fecha de pago en los libros del receptor: 15 de julio de 2020
- Fecha inmediatamente posterior a los 60 días desde la fecha mencionada en la factura: [Si la fecha de la factura es el 15 de mayo de 2020, 60 días después será el 14 de julio de 2020]
- Fecha de registro en el libro contable del receptor: 18 de julio de 2020
Por lo tanto, el momento del suministro será el 14 de julio de 2020.
3. Crédito fiscal por impuestos pagados bajo el mecanismo de inversión del sujeto pasivo (RCM)
Según la sección 16(2) de la Ley CGST de 2017, una de las condiciones para reclamar el crédito fiscal es que “la persona registrada esté en posesión de una factura fiscal o nota de débito emitida por un proveedor registrado bajo esta Ley, o cualquier otro documento de pago de impuestos que se prescriba”.
Por lo tanto, a efectos de reclamar el crédito fiscal (ITC) del GST pagado bajo el RCM, la factura del proveedor no es suficiente, ya que en tal caso el proveedor no emite una factura fiscal. Sin embargo, el comprobante (challan) utilizado por el receptor para el pago del GST bajo el RCM constituye un documento de pago de impuestos.
En consecuencia, el receptor tiene derecho a reclamar el ITC en el mes en que se realiza el pago del GST bajo el RCM, sujeto al cumplimiento de las demás condiciones establecidas en la sección 16(2) de la Ley CGST de 2017.
4. Preguntas frecuentes sobre el RCM
4.1 ¿Qué sucede si el receptor no es un comerciante registrado pero está obligado a pagar impuestos bajo el RCM?
Todos los contribuyentes obligados a pagar impuestos según el Mecanismo de Inversión del Sujeto Pasivo (RCM) deben registrarse en el GST, y el umbral de 20/40 lakhs de rupias no será aplicable para ellos.
4.2 Soy fabricante de suministros sujetos a GST bajo el mecanismo de inversión del sujeto pasivo. ¿Debo registrarme en el GST?
No, los fabricantes de suministros para los cuales el receptor es responsable de pagar impuestos bajo el GST no están obligados a registrarse en el GST. Sin embargo, si surge la obligación de registro bajo cualquier otra categoría, el proveedor deberá obtener el registro de GST para ese fin.
4.3 ¿Está permitido el ITC bajo el mecanismo de inversión del sujeto pasivo?
El monto total del impuesto pagado bajo el mecanismo de inversión del sujeto pasivo estará disponible para el ITC (crédito fiscal) solo si los bienes o servicios suministrados se utilizan o se utilizarán en el negocio. Por lo tanto, en este caso, el receptor puede aplicar el ITC.
4.4 ¿Debo pagar impuestos bajo el RCM también por compras pequeñas?
Usted no está obligado a pagar GST bajo el mecanismo de inversión del sujeto pasivo por las compras realizadas dentro del estado a un vendedor no registrado, a menos que el monto total del suministro supere las 5000 rupias por día.
4.5 What happens if an Input Service Distributor receives such goods or services which are liable to Reverse Charge Mechanism?
Well, an Input Service Distributor can't purchase any good or service which is liable to RCM. In case, the ISD wishes to obtain such supplies and take the RCM paid as credit; the person needs to register as a Normal Taxpayer.That’s all! Now you know all about the Reverse Charge Mechanism. If you have further queries related to RCM, write it in the comment box below. Stay connected for latest updates on GST.
