RCM, or the Reverse Charge Mechanism,

RCM, or the Reverse Charge Mechanism, is a GST provision where the recipient of goods or services is liable to pay the GST, rather than the supplier. This is the opposite of the normal GST process where the supplier collects the tax from the customer and pays it to the government.

The purpose of RCM is to ensure tax is collected in specific situations that are prone to tax evasion or involve suppliers who are difficult to regulate.

Applicability of RCM

There are two main scenarios where RCM applies:

Notified Goods and Services: The government has specified a list of goods and services where RCM is mandatory, regardless of whether the supplier is registered or not.

Supplies from Unregistered to Registered Persons: When a registered business purchases goods or services from an unregistered person, the registered buyer must pay the GST under RCM.

Updated List of Services and Rates under RCM

Here's a breakdown of some of the key services under RCM, along with their applicable GST rates:

Goods Transport Agency (GTA):

Rate: 5% (without Input Tax Credit) or 12% (with Input Tax Credit).

Recipient: Any registered business, factory, society, or corporate. The GTA is exempt from RCM if they are exclusively providing services to unregistered persons and have not opted for the 12% rate.

Legal Services:

Rate: 18%

Recipient: Any business entity. This applies to legal services provided by an individual advocate, a senior advocate, or a firm of advocates.

Services by Director of a Company:

Rate: 18%

Recipient: The company or body corporate. This applies to services provided by a director, such as sitting fees or advisory services.

Insurance Agent Services:

Rate: 18%

Recipient: Any person carrying on insurance business (e.g., an insurance company).

Recovery Agent Services:

Rate: 18%

Recipient: A banking company, financial institution, or non-banking financial company (NBFC).

Sponsorship Services:

Rate: 18%

Recipient: A body corporate or partnership firm.

Services by Government/Local Authorities:

Rate: 18% (for renting of immovable property, in general it depends on the service).

Recipient: A business entity. This applies to most services provided by the government, except for some specific exemptions like speed post or transport of passengers.

Author/Artist/Musician Services:

Rate: 12%

Recipient: A publisher, music company, producer, or the like. This applies to the transfer or use of copyrights related to literary, dramatic, musical, or artistic works.

Security Services:

Rate: 18%

Recipient: A registered person. This applies when the services are provided by any person other than a body corporate.

Renting of Residential Dwelling:

Rate: 18%

Recipient: A registered person. This applies to the renting of a residential dwelling to a registered person for business purposes.

Key Points to Remember about RCM

Compulsory Registration: If you are required to pay tax under RCM, you must compulsorily register under GST, regardless of your turnover. The normal turnover threshold for registration does not apply.

No ITC for Supplier: The supplier of RCM services or goods cannot claim Input Tax Credit (ITC) on the supplies for which the recipient is paying the tax.

ITC for Recipient: The recipient who pays GST under RCM can claim the ITC on that amount, provided the goods or services are used for business purposes. However, the RCM liability must be paid in cash (by debiting the electronic cash ledger) and cannot be settled by using the electronic credit ledger.

Self-Invoicing: When a registered person receives a supply from an unregistered person that falls under RCM, they are required to issue a self-invoice for that transaction.