Module 2: GST on Reverse Charge Mechanism (RCM) – Advance GST Course
📘 What is Reverse Charge Mechanism (RCM)?
Under the normal GST system, the supplier of goods or services is liable to pay GST to the government. However, under RCM, this responsibility shifts to the recipient of the supply, meaning the buyer must pay GST directly and then claim Input Tax Credit (ITC) if eligible.
RCM is defined under Section 9(3) and 9(4) of the CGST Act, 2017, and is applicable in specific notified cases or when purchases are made from unregistered suppliers (with certain conditions).
⚖️ Legal Provisions of RCM
Section 9(3) of CGST Act:
GST is payable by the recipient on specific notified goods or services listed by the government.
Section 9(4) of CGST Act:
If a registered person procures goods/services from an unregistered person, the registered buyer must pay GST under RCM.
(Note: Applicable only in certain notified cases such as in real estate sector)
IGST Act equivalents:
-
Section 5(3) and 5(4)
📦 Goods and Services Covered under RCM
✅ Notified Goods under RCM (as per Section 9(3)):
- Cashew nuts (not shelled/peeled)
- Tendu leaves
- Tobacco leaves
- Silk yarn
- Used vehicles (under certain conditions)
✅ Notified Services under RCM:
- Goods Transport Agency (GTA)
- Legal services by advocate/firm
- Services by government (excluding renting)
- Sponsorship services
- Security services
- Directors’ services
- Renting from unregistered person to registered entity (in some cases)
⛔ The list is dynamic – it is important to refer to the latest CBIC notifications regularly.
📝 Registration & Compliance Under RCM
- Mandatory GST registration is required for a person liable to pay tax under RCM, even if turnover is below the threshold.
- The recipient must pay tax in cash (cannot use ITC for RCM payment).
- The recipient can claim ITC on the RCM paid, if used for taxable outward supply.
- Invoice and payment voucher must be self-generated by the recipient.
- RCM transactions must be properly recorded and disclosed in returns.
🚫 Impact on Unregistered and Composition Dealers
🔸 For Unregistered Dealers:
- Supplies made to registered buyers may attract RCM on the recipient.
- Recipient bears the tax, not the unregistered supplier.
🔸 For Composition Dealers:
- Composition scheme is not applicable for RCM liabilities.
- If they receive RCM supplies, they must pay GST under RCM at standard rates and cannot claim ITC.
📥 RCM Reporting in Returns
| Return | Reporting Requirement |
|---|---|
| GSTR-3B | RCM tax liability must be declared in Table 3.1(d) |
| GSTR-2B | Auto-populated with eligible RCM ITC (if supplier files GSTR-1 properly) |
| GSTR-1 | RCM outward supply not reported (as supplier is not liable) |
✔️ Ensure reconciliation of books with GSTR-3B and GSTR-2B for RCM claims.
🆕 Latest Updates Related to RCM (FY 2024–25)
- Clarifications issued for RCM on services by directors.
- Automated ITC matching becoming stricter – RCM compliance is under increased scrutiny.
- Real estate sector RCM on supplies from unregistered dealers continues with specific builder conditions.
⚠️ Common Challenges in RCM Compliance
| Issue | Impact |
|---|---|
| Forgetting to pay RCM | Interest and penalties |
| Claiming ITC without payment | ITC may be disallowed during GST audit |
| Wrong classification | Misreporting and notices from department |
| Failure to self-invoice | Breach of compliance under GST laws |
📌 Conclusion
The Reverse Charge Mechanism (RCM) is an integral part of the GST system that ensures tax coverage for high-risk or unregistered transactions. Understanding the list of notified goods/services, maintaining documentation, and ensuring proper return filing are essential for RCM compliance.
📣 Need Help with RCM Compliance?
At Verotus Finlegal Solutions LLP, we help businesses:
- Assess RCM applicability
- Prepare payment vouchers and self-invoices
- Ensure accurate return filing and ITC claims
📍 Kolhapur, Maharashtra
🌐 www.verotusllp.com
📞 +91-7066336680
