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Reverse charge is a mechanism where the recipient of the goods or services is liable to pay GST instead of the supplier. Read on!

All about Reverse Charge Mechanism (RCM) under GST

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"All about Reverse Charge Mechanism (RCM) under GST"

Anoop Menon

From budgeting to expenses management and everything in between

<p>
    The GST regime in India has brought about several changes in the Indian Taxation system. These changes have helped to eliminate the tax's cascading impact and introduced the missing uniformity in the system. Under the GST falls an important mechanism called Reverse Charge Mechanism (RCM). If you are new, you may question the reverse charge mechanism,
    <strong>
    </strong>
    and this article will talk exactly about the same. So read this article till the end to know what it is!
   </p><h2>
    <strong>
     What is Reverse Charge Mechanism?
    </strong>
   </h2><p>
    RCM, also known as Reverse charge mechanism, is a mechanism under GST where the tax liability is borne by the recipient of the goods and services instead of the supplier. In the process, the supplier is not liable to pay the tax, while the recipient becomes responsible for paying the tax, which includes the GST amount, to the government. The reverse charge mechanism in GST applies under certain conditions and only on specified goods and services.
   </p><h2>
    <strong>
     When is Reverse Charge Applicable?
    </strong>
   </h2><p>
    Reverse GST charges apply to certain goods and services under specific conditions. These conditions include:
   </p><h3>
    <strong>
     Unregistered Seller to Registered Buyer
    </strong>
   </h3><p>
    If the seller is not registered under GST, but the buyer is, then the RCM applies. The buyer has to pay the GST directly and generate the invoice for the goods or services they receive. If it is an interstate transaction, the buyer pays only IGST, while under RCM, the buyer pays SGST and CGST for intrastate transactions.
    <strong>
     E-commerce
    </strong>
   </p><p>
    Businesses can use e-commerce operators to sell products or provide services. As per Section 9(5) of the CGST Act, if a service provider utilises an e-commerce operator for specified services, the RCM will apply to the e-commerce operator responsible for paying the GST. The services that fall under this section include:
   </p><ul role="list">
    <li>
     Transportation services like Ola, Uber
    </li>
    <li>
     Providing accommodation services in hotels like Oyo and Make My Trip
    </li>
    <li>
     Housekeeping services like plumbing and carpeting
    </li>
   </ul><h3>
    <strong>
     Specific Goods
    </strong>
   </h3><p>
    The Central Board of Indirect Taxes and Customs (CBIC) has listed certain goods and services for which the
    <strong>
     Reverse Charge is applicable
    </strong>
    under GST. This online list includes cashew nuts, tobacco leaves, bidi wrappers, lottery, raw cotton, and others.
   </p><h2>
    <strong>
     Time of Supply Under the Reverse Charge Mechanism
    </strong>
   </h2><p>
    For goods under reverse charge, the time of supply is determined by the earliest of the following dates.
   </p><ul role="list">
    <li>
     Date of goods receipts
    </li>
    <li>
     Payments date
    </li>
    <li>
     The first day after 30 days from when the supplier issues an invoice.
    </li>
   </ul><p>
    If it is impossible to identify the supply time for goods under reverse charge, then the date of entry in the recipient's books of account shall be considered the time of supply.
   </p><p>
    <strong>
     Example:
    </strong>
   </p><ul role="list">
    <li>
     Date of receipt: 25 May 2021
    </li>
    <li>
     Date of invoice: 11 June 2021
    </li>
    <li>
     Date of entry in the books of the receiver: 28 May 2021
    </li>
   </ul><p>
    In this case time of supply will be 25 May 2021
   </p><h2>
    <strong>
     Input Tax Credit Under Reverse Charge Mechanism
    </strong>
   </h2><p>
    When a supplier provides goods or services under a reverse charge mechanism, the recipient is responsible for
    <a href="https://www.wbcomtax.gov.in/GST/GST_FAQ/Reverse_Charge_Mechanism_under_GST.pdf" target="_blank">
     paying the GST.
    </a>
    The supplier cannot claim an input tax credit for the goods or services provided in such cases. However, the recipient can claim an input tax credit for the GST paid, provided that the goods and services received are used as inputs in their business.
   </p><h2>
    <strong>
     Conclusion
    </strong>
   </h2><p>
    The Reverse Charge Mechanism is an important provision under the GST system that helps ensure compliance and accountability for the payment of taxes. It places the responsibility of paying taxes on the recipient of goods and services in certain specified situations and helps to prevent tax evasion and fraud. Hope this article has helped you understand
    <strong>
     what reverse charge is in GST
    </strong>
    .
   </p><p>
    Moreover, here is one free tip if you want to manage your taxes and finance better, check out
    <a href="https://fi.money/" target="_blank">
     Fi Money
    </a>
    . They have a personal finance assistant,
    <a href="https://fi.money/features/ask-fi" target="_blank">
     AskFi
    </a>
    , who can help you properly manage your finances. With Fi's Analyser, you can track your expenses by merchants/brands, categories such as food or entertainment, and daily/monthly time frames, which can help you identify potential tax deductions and credits. Additionally, Fi can offer helpful nudges to maximise your savings and investments, ultimately leading to greater tax savings. The Insights Hub on Fi's Analyser can also provide your credit score, which can be a valuable factor in tax planning. By utilising Fi's platform, you can easily make informed tax decisions.
   </p><h2>
    <strong>
     Frequently Asked Questions
    </strong>
   </h2><h3>
    <strong>
     1. Who is eligible for RCM?
    </strong>
   </h3><p>
    If you make purchases from unregistered suppliers that add up to less than Rs. 5,000 daily, you don't have to pay taxes under the Reverse Charge Mechanism (RCM). However, this limit of Rs. 5,000 is the total amount from all unregistered suppliers and not for each individual supplier.
   </p><h3>
    <strong>
     2. What is the GST rate on Reverse Charges?
    </strong>
   </h3><p>
    The dealers eligible under the Composition scheme must pay taxes at 5%, 12%, 18%, and 28%, while those not eligible must pay 1% or 5% under the RCM mechanism.
   </p>

All about Reverse Charge Mechanism (RCM) under GST | Fi Money

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