RCM (Reverse Charge Mechanism) Under GST With Latest Update | JAN’25

The Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) framework shifts the responsibility of tax payment from the supplier to the recipient of goods or services. This approach ensures tax compliance, especially in sectors with unorganized suppliers or where the supplier is unregistered.

Key Aspects of RCM:

  1. Applicability: RCM applies in specific scenarios, such as:
    • Supply of certain goods and services as notified by the government.
    • Purchases from unregistered suppliers by registered recipients.
    • Services are provided through e-commerce operators.
  2. Compliance Requirements:
    • The recipient must issue a self-invoice for purchases from unregistered suppliers.
    • Tax under RCM must be paid in cash; Input Tax Credit (ITC) cannot be used for this payment.
    • The recipient can claim ITC on the tax paid under RCM, subject to eligibility.

Recent Updates on RCM:

  • Introduction of RCM on Metal Scrap: Effective October 1, 2024, the GST Council introduced RCM on the supply of metal scrap by unregistered persons to registered persons. This measure aims to curb tax evasion in the metal scrap industry. TaxGuru
  • Renting of Commercial Property: The GST Council has brought the renting of commercial properties by unregistered persons to registered persons under RCM. This change ensures tax compliance in real estate transactions where landlords are unregistered. Hindustan Times
  • Ancillary Services by Goods Transport Agencies (GTA): Clarifications have been issued stating that ancillary services provided by GTAs, such as loading and unloading, when part of the transportation of goods by road, will be treated as composite supplies and taxed under RCM. TaxGuru
  • RCM Liability/ITC Statement on GST Portal: In August 2024, it introduced a new RCM Liability/ITC Statement to help taxpayers manage their RCM liabilities and input tax credit claims. This feature assists in reconciling discrepancies between RCM liabilities declared and ITC availed. TaxGuru

These updates reflect the government’s ongoing efforts to streamline GST compliance and address tax evasion in specific sectors.

Some FAQ’s RCM (Reverse Charge Mechanism)

1. What is the Reverse Charge Mechanism (RCM) under GST?

  • Answer: RCM is a mechanism under GST where the liability to pay tax is shifted from the supplier to the recipient. In other words, the recipient of goods or services is responsible for paying the GST instead of the supplier.

2. When does RCM apply under GST?

  • Answer: RCM applies in two primary situations:
    • When notified goods or services are supplied.
    • When a registered person procures goods or services from an unregistered supplier.
    • Specific cases like goods transportation by road, certain services by government bodies, and the metal scrap industry.

3. How do I identify if RCM is applicable on a particular transaction?

  • Answer: RCM applies only to transactions notified by the government. A list of such goods and services is available in GST notifications and can be verified on the GST portal.

4. Is RCM applicable on imports?

  • Answer: Yes, RCM applies on import transactions under IGST. Importers must pay IGST on the value of imported goods, and they can claim input tax credit (ITC) if eligible.

5. How do I pay GST under RCM?

  • Answer: GST under RCM must be paid in cash using the GST portal’s tax payment options. ITC cannot be used to discharge the RCM liability.

6. Can I claim input tax credit (ITC) on RCM payments?

  • Answer: Yes, the recipient can claim ITC on tax paid under RCM if the goods or services are used for business purposes and eligible for ITC.

7. Do I need to issue an invoice for RCM transactions?

  • Answer: Yes, the recipient must issue a self-invoice when receiving goods or services from an unregistered supplier. The self-invoice should detail the RCM tax liability.

8. Is RCM applicable to all unregistered purchases?

  • Answer: No, RCM applies to purchases from unregistered suppliers only when it involves notified goods or services.

9. Is RCM applicable for e-commerce transactions?

  • Answer: Yes, if a service is provided through an e-commerce platform, such as ride-hailing, RCM applies. The e-commerce operator is responsible for paying GST under RCM in such cases.

10. What are the latest updates regarding RCM in 2024?

  • Answer: Recent updates include:
    • RCM on the sale of metal scrap by unregistered persons.
    • RCM for renting commercial properties by unregistered persons to registered persons.
    • Introduction of the RCM Liability/ITC Statement on the GST Portal for better compliance tracking.

11. Do I need to file any specific returns for RCM?

  • Answer: RCM transactions are reported in GSTR-3B. Taxpayers must declare their RCM liability in the appropriate columns, and ITC, if availed, should also be recorded.

12. What are the penalties for non-compliance with RCM?

  • Answer: Non-compliance with RCM can lead to penalties, interest, and loss of input tax credit. Accurate reporting is crucial to avoid penalties.

13. How frequently do I need to pay RCM liabilities?

Answer: RCM liabilities must be discharged monthly or quarterly, depending on the filing frequency of the taxpayer’s GST returns.

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