What is RCM (Reverse Charge Mechanism) ?

What is RCM (Reverse Charge Mechanism) ?

30 November 2024

What is RCM (Reverse Charge Mechanism) under GST?

The Reverse Charge Mechanism (RCM) under GST refers to a situation where the recipient of goods or services is liable to pay the GST instead of the supplier. Typically, under GST, the supplier collects and remits the tax. However, under RCM, the responsibility shifts to the recipient of the goods or services.
 

Tax Payment:

The recipient pays GST directly to the government under RCM and cannot use input tax credit (ITC) for this payment. Tax under RCM has to be paid through Cash ledger under GST. ITC on the tax paid under RCM can, however, be claimed later or in a same month, subject to eligibility.
 

Invoice and Record Keeping:

The recipient must issue a self-invoice (from 1st November, 2024 via Notification no 20/2024 issued on 8th October, 2024)  if the supplier is unregistered and maintain proper records of such transactions.
 

Situations Where RCM Applies:

1.              Procurement from Unregistered Suppliers:
                  •                If a registered person procures goods/services from an unregistered supplier, RCM applies (unless specifically exempted). However, this rule was limited by later notifications.
 2.              E-Commerce Operators:
                  •                E-commerce operators are required to pay tax under RCM for specified services, such as passenger transport by cab aggregators like Uber and Ola, or hotel accommodations booked through platforms like Airbnb.
 

List of All Services and Goods in Which RCM is Applicable Under GST

The Reverse Charge Mechanism (RCM) under GST applies to specific goods and services as notified by the GST authorities. Below is a detailed list of goods and services subject to RCM along with their applicable conditions.
 

RCM on Goods

Category
Recipient Liable to Pay GST
Notification
Cashew nuts (not shelled/peeled)
Registered person buying from an agriculturist
Notification No. 4/2017-Central Tax (Rate)
Bidi wrapper leaves (tendu leaves)
Registered person buying from an agriculturist
Same as above
Raw cotton
Registered person buying from an agriculturist
Same as above
Silk yarn
Registered person buying from a supplier who is not a taxable person
Same as above
Supply of lottery, betting, gambling, or horse racing
Recipient under the state-authorized agency
Same as above
 

RCM on Services

Service Description
Recipient Liable to Pay GST
Notification
Goods Transport Agency (GTA)
Specified recipients (e.g., factories, companies, LLPs)
Notification No. 13/2017-Central Tax (Rate)
Legal services provided by advocates or firms
Business entities (except exempt services)
Same as above
Services by an arbitral tribunal
Business entities
Same as above
Sponsorship services
Corporate or partnership firm
Same as above
Services by a director (not in employee capacity)
Company or body corporate
Same as above
Insurance agent services
Insurance company
Same as above
Recovery agent services
Banking or financial institution, or NBFC
Same as above
Renting of motor vehicles (if supplier is unregistered)
Body corporate (registered recipient)
Same as above
Services by an author, artist, or music composer (under a copyright)
Publisher, music company, or producer
Same as above
Securities lending services
Recipient (borrowing entities)
Notification No. 45/2017-Central Tax (Rate)
 
Please note that the above list is subject to updates and changes as per notifications issued by the GST Council from time to time. For the latest information and compliance requirements, refer to the official GST portal or consult with a tax expert.

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