The 50th GST Council meeting brought significant updates to the Reverse Charge Mechanism (RCM) in GST. Understand the changes and how they impact businesses, ensuring compliance and informed decision-making.
What is the Reverse Charge Mechanism?
Reverse Charge Mechanism (RCM) is a mechanism under GST where the recipient of the goods or services is liable to pay GST instead of the supplier. This is done to prevent tax evasion and to ensure that GST is paid on all taxable supplies.
Latest Updates on RCM in GST – 50th GST Council meeting
The 50th GST Council meeting held on July 11, 2023, made the following recommendations regarding the Reverse Charge Mechanism (RCM):
- Services supplied by a director of a company to the company in his private or personal capacity are not taxable under RCM.
- Supply of raw cotton, including kala cotton, by agriculturists to cooperatives is taxable under RCM.
When is Reverse Charge Applicable?
RCM applies to a wide range of goods and services, including:
- Import of goods and services
- Supply of goods and services by unregistered dealers to registered dealers
- Supply of certain goods and services by registered dealers to each other, such as:
- Supply of goods on a consignment basis
- Supply of goods through an agent
- Supply of services by way of input services
- Supply of services by way of job work
Time of Supply Under RCM
The time of supply under RCM is the date on which the recipient of the goods or services receives the invoice or the date on which the payment is made, whichever is earlier.
Registration Rules Under RCM
Any registered dealer who is liable to pay GST under RCM is required to register under GST. However, there are some exceptions to this rule, such as:
- Unregistered dealers who import goods or services
- Registered dealers who make supplies to unregistered dealers on a casual basis
RCM Provisions Under GSTR Forms – GSTR 1 – GSTR 2
The recipient of the goods or services liable to pay GST registration under RCM is required to declare the same in their GSTR-1 and pay the GST due. The supplier of the goods or services is also required to declare the supply in their GSTR-2, but they are not required to pay GST on it.
Here are some examples of RCM in GST:
- A registered dealer imports goods from a foreign country. The dealer is liable to pay GST on the import of goods under RCM.
- An unregistered dealer supplies goods to a registered dealer. The registered dealer is liable to GST apply online on the supply of goods under RCM.
- A registered dealer supplies services by way of input services to another registered dealer. The recipient dealer is liable to pay GST on the supply of services under RCM.
- A registered dealer supplies goods through an agent to another registered dealer. The recipient dealer is liable to pay GST on the supply of goods under RCM.
Who Should Pay GST Under RCM?
The recipient of the goods or services should pay GST under RCM. This is different from the normal rule under GST, where the supplier of the goods or services is liable to pay GST.
Our online GST calculator India simplifies GST calculations. Try it for accurate results.
Input Tax Credit (ITC) Under RCM
The recipient of the goods or services under RCM is eligible to claim ITC on the GST paid. This means that they can reduce the amount of GST that they owe on their own sales by the amount of GST that they have paid under RCM.
Supply of Goods Under RCM in GST
Some common examples of supplies of goods under RCM include:
- Import of goods
- Supply of goods by an unregistered dealer to a registered dealer
- Supply of goods on a consignment basis
- Supply of goods through an agent
Supply of Services Under RCM
Some common examples of supplies of services under RCM include:
- Import of services
- Supply of services by an unregistered dealer to a registered dealer
- Supply of input services
- Supply of services by way of job work
Important Points to be Taken Care Under RCM in GST
- The recipient of the goods or services under RCM is required to register under GST, even if they are not otherwise required to do so.
- The recipient of the goods or services under RCM is required to pay GST on the full value of the supply, including any freight or insurance charges.
- The recipient of the goods or services under RCM is required to issue a self-invoice to the supplier. The self-invoice must contain all the details of the supply, including the GST amount payable.
- The recipient of the goods or services under RCM is required to file a GSTR-1 return and pay the GST due.
Reverse Charge Mechanism Example
A registered dealer imports goods from a foreign country. The dealer is liable to pay GST on the import of goods under RCM. The dealer will need to issue a self-invoice to the foreign supplier and pay the GST due. The dealer will also need to file a GSTR-1 return and declare the import of goods.
What is Self Invoicing?
Self-invoicing is a process where the recipient of the goods or services issues an invoice to the supplier. This is required in cases where the supplier is not registered under GST or where the supply is subject to RCM.
Self-invoices must contain all the details of the supply, including the:
- Name and address of the supplier and recipient
- Description of the goods or services supplied
- Quantity and value of the goods or services supplied
- GST rate and the amount payable
Self-invoices must be issued within 30 days of the date of the supply.
RCM Under GST FAQs
In which GSTR form RCM sales can be shown when filing GST returns?
RCM sales should be shown in GSTR-1.
Can ITC on RCM be claimed in the same month?
Yes, ITC on RCM can be claimed in the same month.
Who is eligible for RCM in GST?
Any registered dealer who is liable to pay GST under RCM is eligible to claim ITC on RCM.
In which case RCM is applicable?
RCM is applicable to a wide range of goods and services, including:
Import of goods and services Supply of goods and services by unregistered dealers to registered dealers Supply of certain goods and services by registered dealers to each other, such as:
● Supply of goods on a consignment basis
● Supply of goods through an agent
● Supply of services by way of input services
● Supply of services by way of job work
Why is RCM paid in cash?
RCM is paid in cash to prevent tax evasion. Under RCM, the recipient of the goods or services is liable to pay GST instead of the supplier. This means that the government is assured of receiving the GST revenue, even if the supplier defaults on payment.
Can we make a 5% claim under RCM?
No, you cannot make a 5% claim under RCM. ITC on RCM can only be claimed on the full amount of GST paid.
What is input tax credit?
Input tax credit (ITC) is a mechanism under GST that allows businesses to reduce the amount of GST that they owe on their own sales by the amount of GST that they have paid on their inputs.
What is input tax credit with an example?
or example, a business that sells clothes buys fabric from a supplier. The business pays GST on the fabric. When the business sells the clothes, it can claim ITC on the GST that it paid on the fabric. This means that the business will only owe GST on the difference between the value of the clothes it sells and the value of the fabric it uses to make the clothes.
Who is eligible for the input tax credit?
Any registered dealer who is liable to pay GST is eligible to claim ITC.
What are the benefits of ITC?
ITC has a number of benefits, including:
● It reduces the cost of doing business.
● It makes businesses more competitive.
● It prevents the cascading of taxes.
● It increases the tax base.
How does ITC work in GST?
ITC is calculated on the basis of the tax invoices that businesses receive from their suppliers. Businesses can claim ITC on the GST that they have paid on their inputs in their GSTR-1 return.
