Understanding RCM Under GST

Introduction

Understanding the Goods and Services Tax (GST) is essential for business owners to stay compliant and avoid penalties. A key component of GST is the Reverse Charge Mechanism (RCM), where the responsibility to pay GST shifts from the supplier to the recipient of goods or services. Under this system, those liable to pay GST under RCM must register compulsorily, regardless of the usual threshold limits. This article provides comprehensive details on RCM under GST, covering topics like the time of supply, input tax credit eligibility, and more. Simplify your compliance with the Reverse Charge Mechanism by filing your GST returns smoothly with the help of IndiaFilings experts!

Brief Overview of Reverse Charge Mechanism (RCM) under GST

Under the Goods and Services Tax (GST), the Reverse Charge Mechanism (RCM) is a special provision where the liability to pay GST shifts from the supplier to the recipient of goods or services. Unlike the usual scenario where the supplier collects and remits GST to the government, under RCM, the recipient directly pays the tax.

RCM applies to both goods and services and affects registered as well as unregistered businesses. It is particularly relevant when the supplier is unregistered or when the transaction value exceeds a specified threshold.

GST Reverse Charge on Goods (Section 9(3))

Below are key goods covered under Section 9(3) where GST liability shifts to the recipient:

Sr. No.	Description of Goods	Supplier	Recipient
1	Cashew nuts, unshelled or unpeeled	Agriculturist	Any registered person
2	Bidi wrapper leaves (Tendu)	Agriculturist	Any registered person
3	Tobacco leaves	Agriculturist	Any registered person
4	Silk yarn	Manufacturers of silk yarn	Any registered person
5	Supply of lottery	State Government or Local Authority	Lottery distributor or selling agent

GST Reverse Charge on Services (Section 9(3))

Here are key services under RCM, with suppliers and recipients defined:

Sr. No.	Description of Services	Supplier	Recipient
1	Transportation of goods by road by Goods Transport Agency (GTA)	GTA	Registered person, corporate, firm, society, factory, or casual taxable person
2	Legal services by advocates or law firms	Individual advocate or law firm	Any business entity in the taxable territory
3	Services by arbitral tribunal	Arbitral tribunal	Any business entity in the taxable territory
4	Sponsorship services	Any person	Body corporate or partnership in taxable territory
5	Services by government entities (excluding some exceptions)	Central/State Government, UT, Local Authority	Any business entity in taxable territory
5A	Renting immovable property by government entities	Government entities	Registered persons under GST Act
5B	Transfer of Development Rights (TDR) or Floor Space Index (FSI)	Any person	Promoter, builder, or developer
5C	Long-term land lease (30+ years) with premium or rent	Any person	Promoter, builder, or developer
6	Services by directors to their companies	Director	Company or corporate body
7	Services by insurance agents to insurance companies	Insurance agent	Insurance business
8	Services by recovery agents to financial institutions	Recovery agent	Banks, financial institutions, NBFCs
9	Use of copyrights (literary, musical, artistic works, etc.)	Authors, composers, artists	Publishers, music companies, producers
10	Services by members of RBI Overseeing Committee	Overseeing Committee members	Reserve Bank of India
11	Services by individual Direct Selling Agents (DSAs) to banks or NBFCs	Individual DSAs (non-corporate)	Banks, NBFCs
12	Services by business facilitators to banks	Business Facilitator	Banks
13	Services by agents of business correspondents	Agent of BC	Business Correspondent
14	Security services (supply of personnel)	Any person (excluding corporates)	Registered person

Time of Supply under RCM

Time of supply is critical in determining when GST liability arises under RCM.

Goods: The earliest of:
- Date of receipt of goods
- Date of payment
- Date immediately after 30 days from invoice
Services: The earliest of:
- Date of payment
- Date immediately after 60 days from invoice

Input Tax Credit (ITC) under RCM

Under RCM, the recipient pays GST but is eligible for Input Tax Credit, subject to:

Eligibility:
- ITC can be claimed if goods/services are used for business purposes.
- Proper documentation like self-generated payment vouchers or supplier invoices is required.
Restrictions:
- ITC cannot be used to pay tax liability under RCM; payment must be made in cash.
- After paying the tax, ITC can be used to offset output tax on other supplies.

RCM Applicability on E-Commerce Operators

For certain services supplied through e-commerce platforms, the e-commerce operator (instead of the supplier) pays GST under RCM. These include:

Transportation of Passengers: Radio taxis, motor cabs, minicabs, motorcycles
Accommodation Services: Hotels, inns, guest houses, etc., if the service provider isn’t registered under GST
Housekeeping Services: Plumbing, carpentry, and similar services, where the provider is unregistered

Self-Invoicing under RCM (Effective November 1, 2024)

Businesses liable to pay tax under RCM must generate self-invoices to claim Input Tax Credit.
Self-invoices must be raised within 30 days of receiving the service.
Use software like LEDGERS to generate GST e-invoices complying with RCM requirements

About the Author

shivani

Shivani is a seasoned content writer with expertise in business registration, tax laws, trademark regulations, and corporate compliance. His well-researched articles provide practical, easy-to-understand guidance, empowering businesses to navigate complex legal and regulatory landscapes with confidence.

June 26, 2025